are  tjct  new 
to  find  ^ 


TRoland  Bennis 


PRESENT    AND    PAST 
BANKING    IN   MEXICO 


Present  and  Past 
Banking  in  Mexico 

BY 

WALTER  FLAVIUS  McCALEB,  PH.D. 

Managing  Director,    The   Massachusetts    Credit    Union    Association; 

Editor,    English    Edition    of    Rene    Slourm's   "Le    Budget"; 

Formerly    Vice  -  Chairman    (active).    Federal    Reserve 

Bank  of  Dallas;  Sometime  Lecturer  on  "Money 

and  Banking"  in  Columbia  University 


Under  the  Auspices  of 
THE  DOHENY  FOUNDATION 


HARPER    &   BROTHERS    PUBLISHERS 
NEW    YORK    AND    LONDON 


PRESENT  AND  PAST  BANKING  IN  MEXICO 


Copyright  1920,  by  Harper  &  Brothers 

Printed  in  the  United  States  of  America 

Published  March.  1920 

c-u 


JFOKNU; 
SANTA  BAKBABA 


YH23 


To 
Willam  B.  Seeley 

Peerless  Master 
Sincere  and  Unfaltering  Friend 


CONTENTS 

CHAP.  PAGE 

PREFACE ix 

INTRODUCTION xv 

I.  EARLY  STAGES  OF  BANKING  AND  FINANCE      .    .  1 

II.  THROUGH  THE  CRISIS  OF  1884 12 

III.  CODE  OF  COMMERCE  OF  1884 25 

IV.  ORIGIN  OF  THE  BANCO  NACIONAL 36 

V.  DUBLAN   AND  THE  BANKS 51 

VI.  HlGH   TIDE   OF   BANK  CONCESSIONS 64 

VII.  PREPARATIONS  FOR  A  GENERAL  BANKING  ACT     .  82 

VIII.  GENERAL  LAW  FOR  INSTITUTIONS  OF  CREDIT      .  99 

IX.  THE  BANCO  REFACCIONARIO  MEXICANO    .    .    .  113 

X.  THE  TRANSITION  PERIOD 126 

XI.  ADOPTION  OF  THE  GOLD  STANDARD 145 

XII.  REFORM  LAW  OF  1908 163 

XIII.  EVE  OF  THE  MADERO  REVOLUTION 179 

XIV.  FlRST   EFFECTS   OF  THE   REVOLUTION         ....  195 

XV.  HUEHTA   AND  THE  BANKS 208 

XVI.  REGIME  OF  THE  CONSTITUCIONALISTAS       .    .    .  225 

XVII.  CRASH  OF  THE  BANKS 243 

BIBLIOGRAPHY 261 

INDEX  .                                                                  .  263 


PREFACE 

THE  economic  history  of  Mexico  scarcely 
holds  a  chapter  of  more  interest  than  that  deal- 
ing with  the  subject  of  banking,  The  uncertain- 
ties which  dominated  the  political  and  economic 
affairs  of  that  country  for  fifty  years  after  the 
recognition  of  her  independence  were  wholly 
antagonistic  to  the  development  of  financial 
institutions.  Baron  Louis,  the  great  French 
economist,  has  said,  "Give  me  a  good  govern- 
ment and  I  will  give  you  well-ordered  finances." 
He  might  well  have  added  that  a  good  govern- 
ment and  well-ordered  finances  are  parts  of  a 
whole — the  one  cannot  exist  without  the  other. 

|f?F~"'When  Mexico  had  overthrown  the  Spanish 
power,  which  had  controlled  the  country  for 
almost  three  centuries,  things  crashed  down  in 

i  all  directions.  For  many  years  prior  to  1810 
the  Spanish  government  had  been  raising  an- 
nually in  Mexico  approximately  $11, 000,000 l 

""""^  We  shall  indicate  peso,  the  Mexican  unit  of  value,  by  P.  It  must 
be  borne  in  mind  that,  subject  to  exchange  fluctuations,  the  $  and  P 

1  were  equivalents  until  the  demonetization  of  silver  in  the  United  States. 
This  relationship  was  further  affected  on  the  passage  in  1905  of  the 

* .  Gold  Standard  Act  by  Mexico.  The  peso  is  now  equivalent  to  $0.50. 

ix 


PREFACE 


of  revenues,  of  which  total  almost  one-half 
was  exported  to  the  mother-country.  However, 
left  to  their  own  devices,  the  Mexicans — spite 
of  forced  loans  and  confiscations — were  unable 
to  make  ends  meet  in  their  national  finances. 
They  struggled  on,  to  be  sure;  but  faction  after 
faction  rose,  only  to  fail  in  the  effort  to  set 
things  to  rights. 

^It  was  no  soil  for  the  development  of  banks. 
Besides,  savings  or  idle  funds  among  the  mass 
of  the  people  were  insignificant  in  volume. 
They  lived  from  hand  to  mouth — very  much, 
indeed,  as  did  their  national  governments — 
and  they  were  ever  and  eternally  hanging  on 
the  verge  of  starvation.  Banking  institutions 
develop  always  in  response  to  economic  needs, 
and  doubtless  they  would  earlier  have  come 
into  existence  in  Mexico  had  there  been  any 
guaranty  as  to  continuity  of  authority,  or  any 
assurance  against  looting  by  a  triumphant 
revolutionary  leader. 

Given  the  degree  of  banking  development  of 
a  country,  it  is  not  difficult  to  appraise  its 
economic  status,  nor  is  it  difficult  to  estimate 
the  degree  of  civilization  and  comfort  of  its 
citizens.  Banks  may  be  said  to  be  barometers 
which  measure  faithfully  the  economic  press- 
ures of  a  country.  Mexico,  therefore,  con- 
vulsed with  interminable  wrangling,  could  not 


PREFACE 

have  been  expected  to  develop  a  system  of 
\banking. 

From  1821  to  1870  Mexico  suffered  from 
continuous  internal  revolutions.  Besides,  there 
were  wars  with  Texas  and  the  United  States, 
and  French  intervention.  As  illustrative  of  the 
chaos  existing  in  national  affairs,  during  these 
fifty  years  there  were  more  than  200  incum- 
bents of  the  post  of  Minister  of  Hacienda,  or 
Treasury.  And  for  fifteen  years  of  the  time  there 
are  in  existence  only  fragmentary  records  of  na- 
tional budgetary  statements.  The  financial  dis- 
organizations of  the  country  extended  through 
private  as  well  as  public  domain.  Arbitrary 
rules  and  decrees  varied  with  each  change  of 
authority.  Properties  were  confiscated  and 
loans  exacted  as  occasion  offered,  and  this 
state  of  things  continued  even  under  the  early 
rule  of  Porfirio  Diaz.  In  all,  from  1821  to 
1869,  Mexico  raised  through  forced  loans  and 
extraordinary  sources  approximately  P360,000,- 
000,  according  to  Romero. 

Soon,  however,  there  was  to  dawn  a  new  era 
for  Mexico.  Under  the  stimulus  of  a  stable 
government,  which  Diaz  came  to  develop  after 
1876,  the  material  interests  of  the  country 
flourished,  and  banks  began  to  be  established 
under  federal  and  state  concessions.  These 
were  of  several  types,  and  it  was  early  recog- 
i  xi 


PREFACE 

nized  that  a  general  banking  law  must  be  en- 
acted. However,  it  was  not  until  1897,  under 
the  leadership  of  Jose  Yves  Limantour,  that 
this  much-needed  measure  became  a  law  of 
the  land.  It  was  a  conspicuous  act,  and  under 
it  there  was  witnessed  an  unprecedented  de- 
velopment of  banks.  These  institutions  con- 
tinued to  grow  in  number  and  responsibility 
up  to  the  Madero  revolution  of  1910,  since 
\  which  date  they  have  suffered  many  vicissi- 
Liudes  of  fortunjfy\  u\ 

In  this-feesk  IJi&ve  attempted  to  trace  the 
history  of  the  credit  institutions  of  the  country 
from  their  initial  stages,  dewrrHo-the  present 
time..  Effort  has  been  made  to  stress  the  salient 
facts  in  the  extraordinary  story  of  the  rise  and 
fall  of  banking  in  our  neighboring  republic. 

This  study  is  based  on  official  Mexican 
sources,  chiefly  the  Memonas  de  Hacienda, 
Memorias  de  las  Institudones  de  Credito,  and 
Boletines  Estadisticas.  Also  certain  data  have 
been  supplied  by  the  present  officials  of  the 
Mexican  government.  Among  these,  it  is  a 
pleasure  to  mention  Senor  J.  G.  Camacho, 
chief  of  the  Department  of  Banking;  Senor 
Carlos  Gonzalez,  chief  of  the  Department  of 
Controleria;  and  finally,  Senor  Rafael  Nieto, 
Sub-Secretary  of  the  Hacienda.  During  my 
stay  in  the  Mexican  capital,  all  possible  facili- 

xii 


PREFACE 

ties  were  tendered  me  by  those  in  authority. 
Still,  it  may  as  well  be  added,  much  information 
sought  was  not  discovered,  and  simply  because 
the  data  did  not  exist,  or  at  all  events  had  not 
been  assembled. 

It  is  surprising  that  so  few  students  have 
given  attention  to  Mexican  finances,  public  or 
private.  Possibly  this  may  have  come  about 
through  the  difficulties  which  beset  the  field, 
the  unsatisfactory  conditions  of  official  reports, 
and  at  times  the  total  absence  of  data  for  cer- 
tain periods.  Then,  in  public  official  reports 
there  are  often  contradictory  statements,  even 
where  reference  is  made  to  the  same  item. 
These  conflicts  must  be  harmonized  and  the 
data  chosen  which  appears  best  to  fit  in  with 
other  facts.  Favre,  in  his  Les  Banques  au 
Mexique,  has  given  us  a  superficial  study  of  the 
Mexican  banks  at  the  height  of  their  power. 
Casasus,  Labastida,  and  Macedo  have  ac- 
quitted themselves  creditably  in  dealing  with 
phases  of  the  general  subject.  Macedo,  in  his 
Tres  Monografias,  has  produced  a  notable  book. 
It  was  left  for  Conant  to  write  the  best  treatise 
on  the  subject  of  banking  in  Mexico,  but  he 
confessedly  made  no  attempt  to  cover  the  en- 
tire field.  Besides,  since  he  wrote,  ten  disas- 
trous years  have  fallen  over  Mexico. 

Acknowledgment  is  here  made  to  my  friends 
xiii 


PREFACE 

and  to  several  bankers  of  Mexico  City,  whose 
names  for  the  moment  may  not  be  made  public. 

I  am  most  grateful  to  Dr.  L.  S.  Rowe  for 
suggestions.  To  Dr.  H.  Parker  Willis  I  am 
heavily  indebted,  for  he  not  only  read  the 
manuscript  but  the  galleys  as  well  and  offered 
some  vital  criticisms.  Dr.  Norman  Bridge  has 
heartily  co-operated  with  me  and  is  due  my 
thanks. 

Finally,  this  labor  may  not  be  concluded 
without  special  reference  to  Mr.  Edward  L. 
Doheny,  who,  out  of  broad  sympathies  for 
Mexico  and  high  philanthropic  purposes,  es- 
tablished the  Foundation  bearing  his  name. 

It  is  scarcely  necessary  for  the  writer  to  af- 
firm that  he  has  done  this  book  with  an  eye 
single  to  reaching  the  truth.  It  is  his  book 
and  he  alone  is  responsible  for  its  contents. 

WALTER  FLAVIUS  McCALEB. 

NEW  YORK,  September,  1919. 


INTRODUCTION 

J9  DURING  the  Spanish  regime  in  Mexico  (1520- 
1810)  no  banking  institution,  in  the  modern 
sense  of  the  term,  came  into  existence  in  that 
country.  The  nearest  approach  to  one  was  the 
Monte  de  Piedad,  a  charitable  organization 
designed  to  lend  small  sums  of  money  to  the 
needy.  It  was  opened  to  the  public  in  Mexico 
City  in  1775;  and  we  shall  have  reason  later 
to  discuss  it  in  some  detail. 

As  a  Spanish  colony,  Mexico  knew  but  prim- 
itive methods  in  finance.  This  was  true  not 
only  in  the  realm  of  government,  but  in  the 
relations  of  individuals.  The  development  of 
the  great  banks  of  England  and  France  had 
reacted  but  slightly  upon  Spain,  and  less  still 
upon  her  remote  colony  of  Mexico.  There 
were,  strictly  speaking,  no  credit  institutions 
in  the  country.  Credit  operations — where  they 
were  carried  on  at  all — were  more  or  less  in- 
cidental to  business.  Merchants  and  traders 
made  advances  of  goods  and  money  to  hacen- 
dados  (plantation-owners),  and  to  mine-owners 
and  operators.  When  the  hacendado  had  gath- 

xv 


INTRODUCTION 

ered  his  crop,  the  merchant  took  heavy  toll  of 
the  yield.  The  system  had  been  directly  im- 
lanted  from  Europe,  and  it  may  be  added  that, 
n  the  nature  of  things,  the  United  States  was 

so  a  victim;  and  that  even  to-day  it  suffers 
in  certain  sections  from  the  deadly  effects  of 
that  earlier  economic  makeshift. 

Closely  allied  to  the  system  of  merchant  ad- 
vance to  farmer  was  that  of  the  rescatador, 
banker-broker  to  the  miner.  The  rescatador 
lent  money  to  mine-owners  and  operators,  and 
in  return  handled  the  output  of  the  mine, 
selling  the  product  and  recouping  himself  for 
his  advances.  This  system,  simple  enough,  was 
destined  nearly  to  disappear  in  the  wreck  of  the 
great  Revolution  of  1810;  but  occasionally, 
even  to  the  present,  it  is  invoked  in  modified 
forms. 

In  the  main,  those  functions  which  we  ascribe 
to  banks  were  nowhere  exercised  in  Mexico 
.until  long  after  its  independence  had  been 
achieved  (1821).  Merchants  and  traders  were 
the  money-lenders;  they  were  also  the  deposi- 
taries. On  their  own  account  they  accumu- 
lated capital  in  specie,  which  they  kept  in  their 
strong-boxes,  and  they  received  moneys  on 
deposit  from  their  friends  and  clients  for  safe- 
keeping, much  indeed  after  the  fashion  in  all 

primitive    communities.      But    as    for    paper 

xvi 


INTRODUCTION 

credits,  in  the  strict  sense — they  were  non- 
existent. There  were,  to  be  sure,  occasional 
transactions  between  money-lenders  and  in- 
dividuals; and  a  few  Mexican  houses  came  to 
be  well  known.  Some  were  greatly  enriched 
through  loaning  to  the  government  at  exorbi- 
tant rates.  These  earned  the  name  of  agiotistas — 
extortionists. 

In  1824  and  1825  there  appeared  on  the  scene 
agents  for  English  houses,  who  soon  introduced 
the  draft  as  an  instrument  of  commerce.  To  be 
able  to  buy  a  London  draft  to  settle  an  out- 
standing foreign  balance  was  indeed  an  in- 
novation in  Mexico.  Messrs.  Manning  &  Mar- 
shall, agents  for  the  house  of  Barclay,  Her- 
ring, Richardson  &  Co.,  of  London,  came  to 
be  well  recognized,  and  it  was  through  this 
connection  that  the  second  foreign  loan  of 
Pi 6,000,000  was  negotiated  in  1825. 

However,  apart  from  money-lending  and 
depositary  operations  of  these  merchants,  trad- 
ers, and  brokers,  there  was  exercised  no  other 
banking  function.  It  was  an  age  of  barter.  All 
business  transactions  were  made  on  the  basis 
of  an  exchange  of  gold  and  silver,  or  other 
commodities.  The  matter  of  transferring  cred- 
its from  one  part  of  the  country  to  another 
presented  serious  difficulties,  for  the  reason 
that  it  involved  the  actual  delivery  of  bullion, 

xvii 


INTRODUCTION 

gold  or  silver.  This  need  gave  rise  to  the  ex- 
pensive system  known  as  convoy — a  system 
which  involved  the  despatch  of  an  armed  guard 
to  protect  the  precious  metals  against  bands  of 
outlaws  infesting  the  country.  This  system 
was  not  abandoned  until  a  degree  of  order  was 
established  in  the  country — indeed,  not  until 
banks  and  railroads  came  to  provide  a  better 
and  safer  mode.  It  may  be  added  that  the 
convoy  system^  in  a  measure,  has  been  re- 
vived during  the  past  few  years  on  account  of 
the  perils  attending  the  shipment  of  money 
and  goods. 

For  many  years  after  the  achievement  of 
her  independence  there  reigned  a  profound 
ignorance  on  the  part  of  the  public  and  Mexi- 
can statesmen  with  respect  to  banking  institu- 
tions. The  first  banks,  so  called,  in  Mexico 
were  not  banks  at  all,  but  rather  agencies  of 
the  government  charged  with  special  duties; 
but  even  here  there  were  so  few  attempts  to 
do  things  that  we  may  briefly  trace  these 
1  efforts. 

On  October  16,  1830,  the  Mexican  Congress 
passed  an  act  authorizing  the  establishment  of 
a  Banco  de  Avio  for  the  purpose  of  stimulating 
national  industries.  Its  capital  was  fixed  at 
Pl,000,000,  and  provision  was  made  for  the 

creation  of  this  capital  through  the  assignment 

xviii 


INTRODUCTION 

of  one-fifth  of  the  customs  dues  collected  from 
cotton  importations.  However,  no  progress 
was  made,  and  on  May  25,  1832,  a  law  was 
passed  authorizing  the  Executive  to  negotiate 
a  loan  of  PlOO,000  in  order  to  provide  the  bank 
with  capital.  Finally,  the  institution  actually 
got  under  way,  but  little  was  achieved.  Then 
the  war  with  Texas  broke  out.  On  January 
20,  1836,  a  law  was  passed  prohibiting  the 
government  from  making  application  of  the 
customs  funds  in  the  manner  prescribed  with 
respect  to  the  bank — and  it  expireoU 

The  war  with  Texas  added  greatly  to  the 
burdens  of  the  distracted  Republic  of  Mexico. 
In  order  to  prosecute  it,  considerable  quantities 
of  copper  were  coined  and  thrown  into  the 
channels  of  commerce,  much  to  the  confusion 
of  business.  On  account  of  the  ease  with  which 
counterfeiters  could  produce  these  crude  coins, 
the  country  was  soon  having  its  first  experience 
with  depreciated  currency.  So  troublesome 
indeed  was  the  matter  that  in  1837  the  Haci- 
enda, or  Treasury,  urged  the  retirement  of  the 
copper  coins  at  their  nominal,  or  market,  value. 
In  order  to  carry  into  effect  this  resolution,  a 
law  was  passed,  January  17,  1837,  authorizing 
the  creation  of  a  national  bank. 

The  capital  of  the  institution  was  to  be  pro- 

1  Memoria  dc  Hacienda,  Mexico.  1870,  p.  110. 

xix 


INTRODUCTION 

vided  by  assigning  to  it,  among  other  things, 
all  the  national  properties  of  the  Republic,  in- 
Eluding  the  confiscated  goods  and  lands  of  the 
Jesuits  and  of  the  Inquisition.  It  was  planned 
that  the  new  bank  should  authorize  a  special 
coinage  of  money  with  which  the  copper  would 
be  retired.  The  bank  was  given  authority  to 
issue  the  necessary  rules  and  regulations,  and 
to  create  a  special  coin  in  the  proposed  amor- 
tization scheme;  and  finally  it  was  empowered, 
if  need  be,  to  negotiate  a  foreign  loan  up  to 
P4,000,000,  hypothecating  its  funds  and  re- 
sources. On  January  20,  1837,  the  establish- 
ment of  the  bank  was  announced,  but  mone- 
tary difficulties  developed  more  rapidly  than 
the  lawmakers  had  imagined;  and  on  March 
8th  a  law  was  passed  by  Congress  reducing  by 
one-half  the  value  of  the  copper  coins  in  circu- 
lation. This  was  a  deliberate  repudiation  of 
the  public  debt,  for  the  reason  that  coins  in 
the  hands  of  innocent  holders — coins  which 
the  government  had  issued  and  legalized  as 
bearing  definite  values — were  suddenly  reduced 
in  value  by  50  per  cent. 

The  bank  co-operated  effectively  in  the  mat- 
ter of  adjusting  the  reductions  ordered  in  the 
copper  currency;  and  there  were  some  who 
hoped  for  a  development  of  its  functions.  But 
the  times  were  not  ripe — after  a  few  years  of 

XX 


INTRODUCTION 

uneventful  experience,  it  was  extinguished  by 
a  law  dated  September  23,  1842.  Thus,  for 
twelve  years,  this  anomalous  institution  had 
maintained  itself  in  a  country  where  no  insti- 
tution was  long  calculated  to  survive.  The 
chief  point  of  interest  lies  in  the  fact  of  its 
existence. 

For  ten  years  nothing  further  was  heard  of  a 
national  bank  for  Mexico,  but,  in  April,  1853, 
Manuel  Escandon  presented  to  Congress  a  proj- 
ect for  a  national  bank.  It  was  proposed  that 
it  should  administer  the  principal  taxes  and 
exercise  a  number  of  the  functions  usually  at- 
tributed to  state  banks.  It  was  to  be  capital- 
ized at  P6,000,000,  P4,000,000  to  be  paid  in 
cash  and  P2,000,000  in  notes  or  bills.  It  was 
to  be  chartered  for  twenty  years,  and  it  was  to 
open  for  the  government  a  credit  of  P9,000,000 
a  year  under  certain  conditions.1 

But  nothing  came  of  the  suggestion — nothing 
could  come  of  any  banking  proposal  on  account 
of  the  turbulent  conditions  which  everywhere 
prevailed.  There  is  scarcely  anywhere  a  chap- 
ter so  hopelessly  confused  as  that  dealing  with 
Mexico  during  the  ten  years  following  Escan- 
d6n's  suggestion.  Politics — complicated  through 
partizanship  and  church — and  economics  were 
inextricably  muddled.  During  the  decade  there 

1  Memoria  de  Hacienda,  1870,  p.  406. 

xxi 


INTRODUCTION 

were  a  number  of  supreme  rulers  of  Mexico,  but 
there  was  not,  for  a  single  year,  the  semblance 
of  a  national  budget.  It  was  as  though  the 
land  had  fallen  into  a  financial  shambles.  The 
most  fragmentary  figures  only  are  to  be  found 
in  the  Hacienda.  The  struggle  between  the 
Reactionaries  and  Liberals  had  been  bitter, 
and  the  triumph  of  Benito  Juarez,  of  the  Lib- 
erals, was  destined  to  be  brief  enough;  for 
Mexico's  neglect  of  her  foreign  debt  obliga- 
\  tions  laid  open  the  way  to  the  joint  interven- 
tion of  Spain,  England,  and  France. 

Singularly  enough,  out  of  the  struggle  that 
ensued  Mexico  was  to  rise  to  higher  and  better 
things  political,  economic,  and  social.  For  a 
time,  under  the  French  intervention,  the  coun- 
try experienced  a  peace  it  had  not  known  since 
1810.  Considerable  foreign  capital  was  im- 
ported into  the  country,  industries  were 
founded,  and  the  first  bank  of  modern  Mexico 
was  established. 


PRESENT    AND    PAST 
BANKING   IN   MEXICO 


PRESENT    AND    PAST 
BANKING   IN   MEXICO 


EARLY   STAGES   OF  BANKING  AND   FINANCE 

MEXICO'S  troubles  at  home  and  abroad 
have  been  the  direct  fruits  of  internal 
anarchy.  The  service — interest  and  amortiza- 
tions— on  the  two  London  loans  of  1824  and 
1825  was  suspended  from  the  first  through 
failure  of  revenues  due  to  the  universal  col- 
lapse of  the  activities  of  the  country.  In  1831 
interest  maturities  were  funded;  but  during  the 
next  six  years,  with  trifling  exceptions,  no 
moneys  went  out  of  Mexico  to  meet  amortiza- 
tions and  coupons. 

In  1837  a  general  refunding  of  foreign  flo- 
tations was  effected;  however,  down  to  1850 
the  charges  on  this  debt  had  slight  attention. 
In  this  latter  year  a  general  funding  of  the 
public  debt,  interior  and  exterior,  was  under- 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

taken.  So  far  as  the  interior  debt  was  con- 
cerned, this  was  the  first  attempt  to  bring  it 
into  order. 

The  plan  pursued  was  that  of  Pay  no,  one 
of  the  big  figures  in  the  Mexican  Hacienda, 
and  his  problem  was  most  complex,  carrying 
the  confusions  of  thirty  years.  For  over  this 
interval  there  had  been  fought  the  wars  of 
1836  with  Texas,  and  of  1848  with  the  United 
States — both  traceable,  in  the  last  analysis,  to 
anarchy  at  home.  The  dictatorship  of  Santa 
Ana  was  responsible  for  the  first;  and  the  sec- 
ond was  precipitated  through  utter  disregard 
of  the  claims  of  American  citizens,  and  through 
Mexico's  attitude  on  the  question  of  the  an- 
nexation of  Texas.  ( 

Anarchy  at  home  had  been  responsible  for 
the  heavy  destructions  of  properties  not  only 
of  Americans,  but  of  foreigners  of  other  na- 
tionalities. Agreements  and  diplomatic  con- 
ventions alike  had  been  entered  into  from  time 
to  time,  and  Mexico  had  assigned  certain  per- 
centages of  customs  revenues  and  other  forms 
of  taxes  to  guarantee  payments  of  her  debts; 
but  these  assignments  had  largely  been  seized 
as  the  needs  of  the  government  required,  and 
the  foreign  holders  of  the  credit  obligations  of 
the  country  could  only  hope  for  better  days, 
which  were  indeed  far  off.  Under  Juarez, 

£ 


EARLY  STAGES  OF  BANKING  AND  FINANCE 

President  of  the  Republic,  in  July,  1861,  a  law 
was  passed  suspending  for  two  years  the  cus- 
toms assignments  pledged  to  cover  the  foreign 
debt.  It  was  at  this  stage  that  England, 
Spain,  and  France,  after  vainly  protesting,  ex- 
ecuted the  Treaty  of  London  (1861),  and  pre- 
pared to  exact  their  just  dues  by  force  of  arms. 

Without  going  into  the  merits  of  the  case, 
intervention  became  a  very  real  thing  in 
Mexico.  In  1863,  England  and  Spain  having 
withdrawn,  France  was  left  alone  in  the  enter- 
prise. French  armies  overran  the  country, 
Maximilian  became  Emperor,  and  Mexico  soon 
was  experiencing  peace  of  a  character  un- 
known for  fifty  years.  A  new  era  was  dawn- 
ing for  the  country,  for  it  may  be  said — 
whatever  the  vices  of  the  Empire  may  have 
been — that  with  its  overthrow  and  the  execu- 
tion of  Maximilian  Mexico  did  not  sink  back 
to  the  level  of  political  and  economic  chaos 
existing  prior  to  intervention.  Indeed,  industry 
and  commerce  took  on  new  life  under  the 
stimulus  of  foreign  enterprise  and  capital.1 

As  evidencing  a  better  state  of  things,  in 
1864  a  bank  opened  its  doors  in  Mexico  City. 
It  was  a  branch  of  the  Bank  of  London,  Mexico, 
and  South  America.  Its  manager,  William 
Newbold,  on  June  22,  1864,  complied  with  the 

1  Labastida,  Leyes  Federates,  p.  528. 
2  3 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Code  of  Commerce  of  1854  and  had  his  bank 
legally  recognized.  Its  protocolization  was 
completed  by  judicial  action  March  2,  1865. l 

The  parent  bank,  with  branches  in  Mexico 
City  and  Lima,  was  located  in  London.  It 
was  not  a  strong  bank  in  point  of  capital,  for 
even  in  1877  its  capital  was  rated  at  only 
£500,000  with  assets  of  £2,195,903.2  But  it 
was  well  officered,  and  so  was  the  branch  in 
Mexico.  Indeed,  it  required  clever  manipu- 
lation to  escape  the  imbroglios  of  Mexican  fac- 
tions. The  bank  at  all  times  held  aloof  from 
political  affiliations,  and  its  perfect  neutrality 
was  respected  until  very  recent  years.  For 
example,  when  a  forced  loan  was  declared  in 
April,  1867,  the  Banco  de  Londres  was  ex- 
empted.3 

The  English  government,  which  had  recog- 
nized Maximilian  as  Emperor  of  Mexico,  could 
scarcely  have  been  cognizant  of  the  plan  on 
the  part  of  the  London  Bank  to  open  offices  in 
Mexico.  Had  it  been,  the  scheme  would  likely 
have  been  discouraged.  The  experience  of 
English  investors  in  Mexican  mines  and  securi- 
ties had  been  most  unsatisfactory,  but  despite 
this  the  branch  was  opened,  and  for  seventeen 


1  Labastida,  Leycs  Federates,  p.  529. 

"a  Gavitoy  Macedo,  La  Cuestion  de  Buncos,  Mexico,  1885,  pp.  123-124- 
3  Memoria  de  Hacienda,  1870,  p.  704. 


EARLY  STAGES  OF  BANKING  AND  FINANCE 

years — if  exception  is  made  of  the  insignificant 
Chihuahua  banks — it  remained  the  only  bank- 
ing institution  in  the  country.  It  carried  on 
its  operations — issuing  notes,  receiving  and  pay- 
ing deposits,  transferring  funds  overseas,  and 
educating  the  people  to  the  uses  of  credit  in- 
stitutions. Soon  after  the  opening  of  the  bank, 
bills,  or  notes,  were  issued  for  the  first  time 
in  the  history  of  Mexico,  if  exception  is  made 
of  the  abortive  attempt  of  the  government  in 
1823  to  float  a  fiat  paper  currency  issue  of 
P4, 000,000.  The  people,  from  questioning 
the  bank's  notes,  came  to  be  appreciative 
of  the  service  rendered.  The  bills  soon  were 
universally  accepted,  and  the  bank  quietly 
gained  momentum.  It  weathered  a  stiff  run 
in  the  'seventies  and  gained  still  further 
prestige,  but,  wisely  enough,  during  the  tem- 
pestuous years  following  intervention  it 
moved  cautiously,  in  keeping  with  British 
tradition. 

An  event  of  prime  importance  came  to  pass 
when  Porfirio  Diaz,  in  1876,  gained  by  force  of 
arms  the  headship  of  the  Mexican  state.  The 
country  was  soon  to  get  down  on  a  peace  foot- 
ing, but  the  needs  of  the  Treasury  were  as 
clamorous  under  Diaz  as  ever  they  had  been 
under  his  predecessors.  However,  he  approached 

the  financial  problems  with  sympathy  and  in- 

5 


PRESENT  AND   PAST ;  BANKING  IN  MEXICO 

telligence.  He  was  ready  to  welcome  any 
enterprise  which  looked  to  the  betterment  of 
conditions.  Profiting  by  this  disposition,  and 
doubtless  inspired  by  the  successful  opera- 
tion of  the  Banco  de  Londres,  the  officers 
in  charge  of  the  Monte  de  Piedad  became 
anxious  to  enlarge  the  scope  of  their  institu- 
tion, which  thus  far  had  enjoyed  an  honorable 
reputation. 

The  Monte  de  Piedad  already  referred  to  had 
been  authorized  by  Carlos  III,  King  of  Spain, 
under  Cedula  of  June  2,  1774.  It  was  opened 
s  an  institution  in  Mexico  City  the  following 
ear,  with  a  capital  of  P300,000.  This  had 
een  provided  by  Pedro  Romero  de  Terreros, 
a  Mexican  who  had  made  a  fortune  in  mining 
and  who,  in  consequence,  had  been  created 
Conde  de  Regla.  Its  founder,  who  once  had 
been  penniless,  intended  to  erect  a  charitable 
institution  designed  to  make  loans  to  the  lower 
classes.  These  loans  were  to  be  for  short 
terms  and  to  be  secured  by  pledges.  They  were 
to  draw  no  interest;  but  the  recipient  of  the 
favor,  on  its  repayment,  was  supposed  to  esti- 
mate its  value  and  leave  accordingly  a  gift  to 
cover  it.  Strangely  enough,  however,  these 
donations,  in  the  view  of  the  directors,  were  not 
sufficiently  generous;  so,  in  1782,  soon  after 
the  death  of  the  Conde  de  Regla,  they  began 

6 


EARLY  STAGES  OP  BANKING  AND  FINANCE 

to  make  charges  on  loans.  This  charge  was  to 
be  made  on  a  basis  of  12  per  cent,  per  annum 
on  loans  perfectly  secured.1 

For  some  years  the  Monte  de  Piedad  con- 
fined its  operations  to  small  transactions. 
Later  it  received  judicial  and  confidential  de- 
posits, exacting  in  some  cases  a  small  charge 
for  safeguarding  them.  In  1849  a  savings  de- 
partment was  opened,  in  which  5  per  cent, 
was  paid  on  deposits.  Besides,  it  undertook  a 
number  of  strictly  trust  operations,  as,  for  in- 
stance, it  entered  into  an  agreement  with  the 
French  Minister  in  June,  1883,  binding  itself 
to  receive  25  per  cent,  of  the  import  and  ton- 
nage dues  assessed  against  French  ships  ar- 
riving at  Mexican  ports,  and  to  remit  these 
funds  to  France  for  the  purpose  of  liquidating 
Mexican  obligations  to  French  subjects  under 
diplomatic  conventions.  The  profits  of  the 
Monte  de  Piedad  increased,  and  in  1877  its 
capital  had  reached  Pi, 000,000,  with  assets  of 
P2,500,000.  It  now  began  to  make  loans  in  a 
maximum  of  P2,000. 

The  various  governments  which  came  and 
went  in  Mexico  had  found  it  necessary  from 
time  to  time  to  intervene  in  the  affairs  of  the 
Monte  de  Piedad.  But  on  the  whole,  for  a 
hundred  years  its  operations  were  carried  on 


1  Labastida,  Leyea  Federates,  p.  534.  J 

7 


PRESENT  AND   PAST  BANKING  IN  MEXICO 


with  a  degree  of  continuity  unknown  in  any 
v- — I    other  establishment  in  the  land. 

riefly  4i&.  have  scanned  the  salient  facts  hi 
the  history  of  the  Monte  de  Piedad  up  to  the 
coming   of   Diaz.  Its   record   had   been  most 
honorable,  but  its  management  now  conceived 
that  it  was  playing  too  insignificant  a  role  in 
the  financial  affairs  of  the  country.     The  di- 
rectors became  ambitious,  feeling,  doubtless, 
the  stimulus  of  the  incipient  "boom";  and  they 
sought  to  enlarge  the  activities  of  the  institu- 
i  On  September  6,  1879,  a  resolution  was 
passed  by  the  board  asking  authority  of  the 
Mexican  government  to  issue  certificates,  pay- 
able to  bearer  on  demand,  in  sum  equal  to  the 
specie  deposits  of  the  Monte  de  Piedad.     Ne- 
gotiations with  the  government  were  closed 
October  6,  1879.     President  Diaz  approved  the 
plans  J — and  in  effect  the  Monte  de  Piedad 
became  a  bank  authorized  to  receive  deposits, 
to  negotiate  discounts,  and  to  issue  notes- 
paper  currency — redeemable  at  par  and  on  de- 
mand, which  the  government  obligated  itself 
to  receive  in  its  offices.     In  short,  the  govern- 
ment put  itself  behind  the  currency  issues  of 
the  Monte  de  Piedad,  which  was  a  weighty 
point  gained.     Through  subsequent  decrees  the 
institution  obtained  the  right  to  issue  bills  up 

1  Labastida,  Leyes  Federates,  p.  534. 

8 


EARLY  STAGES  OF  BANKING  AND  FINANCE 

to  a  maximum  of  P9,000,000 — a  right,  fortu- 
nately, it  never  exercised.  In  some  respects  the 
Monte  de  Piedad  now  came  to  enjoy  privileges 
quite  beyond  those  of  the  Banco  de  Londres, 
its  only  competitor — particularly  in  the  matter 
of  government  recognition.  To  have  its  notes 
received  in  the  public  offices  was  the  next  thing 
to  making  them  legal  tender. 

In  the  mean  time,  while  the  Monte  de  Piedad 
was  breaking  away  from  its  old  anchorage,  far 
north  of  Mexico  City  and  entirely  independent 
of  the  influence  of  the  Banco  de  Londres  or  of 
the  Monte  de  Piedad,  there  sprang  up  in 
Chihuahua  two  small  banking  institutions. 
The  first  of  these,  founded  in  November,  1875, 
was  known  as  Santa  Eulalia.  It  bore  trace  of 
American  antecedents,  spite  of  the  Scotch 
name  of  its  founder,  MacManus.  At  first  it 
operated  as  a  private  bank.  Later  it  was  duly 
chartered.  It  was  authorized  to  receive  de- 
posits, and  was  permitted  to  issue  notes  repay- 
able in  silver  pesos  at  8  per  cent,  discount — or 
if  redeemed  in  copper  they  were  to  be  paid  at 
par.  It  will  be  recalled  that  the  problem  of 
copper  coinage  had  been  perplexing  to  the 
country,  and  the  discrimination  allowed  in  the 
redemption  of  bills  is  but  an  additional  bit  of 
evidence  as  to  the  monetary  confusion  pre- 
vailing. 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Slowly,  however,  general  conditions  im- 
proved. There  was  peace,  first  of  all;  then, 
foreign  capital  was  flowing  in  rapidly;  mines 
were  being  opened  and  railroads  constructed. 
But  despite  this,  when  Diaz,  on  December  1, 
1880,  retired  from  the  Presidency — succeeded 
by  Manuel  Gonzalez — the  condition  of  the 
Treasury  was  serious.  Not  only  were  there 
deficits  from  budgetary  operations,  but  interest 
and  amortizations  had  accumulated  on  the 
foreign  debt  to  an  embarrassing  total.  What  is 
more,  some  of  the  foreign  powers  were  not  in 
amiable  mood,  and  force  might  again  be  applied 
in  an  effort  to  exact  long-overdue  payments  on 
the  public  debt. 

Discouraging  as  the  situation  appeared  in 
many  of  its  aspects,  as  a  matter  of  fact  the 
country  was  entering  upon  the  greatest  era  in 
its  history.  As  the  year  1880  drew  to  its  close 
Diaz  could  look  about  him  with  pride  on  his 
achievements.  First  of  all,  peace  had  been 
imposed  on  the  country,  and  a  state  of  economic 
and  social  well-being  everywhere  prevailed  such 
as  Mexico  had  not  before  known.  On  the 
score  of  financial  institutions,  in  his  farewell 
address  of  December  1, 1880,1  he  referred  to  the 
Monte  de  Piedad.2  He  stated  with  evident 
satisfaction  that  this  institution  had  been  au- 

1  Address,  Mexico,  1880,  pp.  54.  2  Address,  p.  10. 

10 


EARLY  STAGES  OF  BANKING  AND  FINANCE 

thorized  to  issue  bills  and  to  carry  on  discount 
operations.  He  boasted  that  from  July  to  the 
middle  of  November,  1880,  the  Monte  de 
Piedad  had  discounted  bills  amounting  to 
P381,883;  and  that  its  circulation  had  in- 
creased between  June  and  November  15th  by 
P845,360.  He  was  frank  to  say  that  the  gov- 
ernment had  extended  its  protection  to  the 
Monte  de  Piedad  on  account  of  the  thousands 
it  had  succored. 

He  made  no  reference  to  the  Banco  de 
Londres,  but  he  did  refer  to  a  plan  for  a  na- 
tional bank.1  It  was  proposed  that  Pi, 000,000 
of  precious  metal  should  be  used  in  the  crea- 
tion of  its  capital,  but  the  details  were  left 
.undeveloped. 

No  one  saw  more  clearly  than  Diaz  the  need 
of  the  financial  regeneration  of  Mexico.  He 
realized  that  the  progress  of  his  country  was 
dependent  on  such  evolution.  He  had  accord- 
ingly, on  June  8, 1880,  appointed  a  commission 
to  study  the  problems  of  banking  and  to  un- 
ravel the  complications  of  the  public  debt.  This 
was,  indeed,  a  most  important  step,  and  marked 
the  beginning  of  the  great  banking  develop- 
ment of  the  country,  and  of  an  intelligent  ap- 
proach to  a  solution  of  the  budgetary  prob- 
lems of  the  state. 

1  Address,  p.  42. 

11 


II 

THROUGH   THE  CRISIS  OF   1884 

fTIHE  close  of  the  year  1880 — which  ushered 
A  in  the  administration  of  Gonzalez — found 
in  Mexico  four  banks:  Monte  de  Piedad;  Banco 
de  Londres,  Mexico  y  Sud  America;  and  two  in- 
significant institutions  in  the  state  of  Chihua- 
hua, Bancos  Santa  Eulalia  and  Hidalgo.  The 
capital  invested  in  these  institutions  was  small 
in  the  aggregate,  and  the  notes  in  circulation 
did  not  exceed  P3,000,000;  but  already  their 
influence  was  felt  throughout  the  Republic. 
In  fact,  the  question  of  banks  was  attracting 
so  much  attention  that  one  of  the  early  pro- 
posals of  De  la  Pefia,  Minister  of  Hacienda, 
dealt  with  the  matter  of  the  organization  of 
three  distinct  type  of  credit  institutions.1  They 
were  to  be  as  follows: 

1.  Rural  banks  dedicated  to  the  support  of 
agriculture; 

2.  Mining  banks  for  the  assistance  of  mining; 

3.  A  national  bank  (Banco  Nacional). 

.    l  Memoria  de  Hacienda,  1880-81,  p.  173. 


THROUGH  THE  CRISIS  OF  1884 

With  respect  to  the  first,  it  was  generally 
recognized  by  those  in  authority  that  some 
type  of  bank  which  should  concern  itself  di- 
rectly with  the  farmer  was  of  primary  im- 
portance; and  it  may  be  added  that  during  the 
next  thirty  years  efforts  were  made  from  time 
to  time  to  supply  this  deficiency;  and  we  shall 
have  need  to  take  count  of  these  cases  in  the 
course  of  this  study. 

On  the  score  of  banks  organized  for  the  pur- 
pose of  assisting  the  mining  industry  we  shall 
find  that  this  idea,  too,  has  suffered  no  diminu- 
tion of  interest.  The  recent  plan  for  a  general 
banking  law,  introduced  and  debated  in  the 
Mexican  Congress  in  the  spring  of  1819,  pro- 
vided for  a  distinct  type  of  mining  bank.  This 
is  not  unreasonable,  for  the  whole  of  Mexican 
history  has  been  vitally  bound  up  with  the 
mining  industry. 

As  for  the  Banco  Nacional  it  was  proposed  by 
De  la  Pefia  that  there  should  be  three  distinct 
departments:  1,  mining;  2,  discount;  3, deposit. 
It  was  planned  that  there  should  be  co-operation 
on  the  part  of  the  state,  not  only  in  the  contribut- 
ing of  capital,  but  in  general.  In  short,  the  in- 
stitution was  supposed  to  undertake  the  essen- 
tial functions  of  a  state  bank.  It  was  expressly 
stipulated  that  the  government  should  at  all 
times  exercise  supervision  over  the  institution. 

13 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

Mexico  was  now  on  the  point  of  embarking 
on  an  intensive  period  of  economic  and  financial 
expansion.  The  country,  for  the  first  time  in 
two  generations,  was  experiencing  peace;  and 
the  normal  reaction  to  such  condition  gave 
birth  to  the  first  conspicuous  industrial  period 
in  Mexican  history.  Preparations  soon  were 
under  way  for  the  organization  of  several  bank- 
ing institutions.  On  August  16,  1881,  a  con- 
cession was  granted  to  Edward  Noetzlin  for  the 
Banco  Nacional  Mexicano;  on  February  18th  of 
the  following  year  Edward  L'Enfer  was  given 
a  concession  for  the  organization  of  the  Banco 
Mercantil,  Agricola  e  Hipotecario;  and  on 
March  21st  a  concession  was  granted  Garay  and 
others  to  establish  the  Banco  Hipotecario 
Mexicano.  We  shall  deal  with  these  in  turn. 

The  shareholders  of  the  Banco  Nacional 
Mexicano  were,  in  the  main,  identified  with  the 
Franco-Egyptian  Bank.  The  capital  of  the 
bank  was  fixed  within  the  limits  of  P6,000,000 
minimum  and  P20,000,000  maximum,  with 
authority  to  begin  business  when  P3,000,000 
had  been  paid  in.  For  each  million  of  capital, 
or  cash,  the  bank  was  permitted  to  issue 
P3,000,000  in  notes,  payable  in  specie  to 
bearer  on  demand.  These  notes,  while  not 
admitted  as  legal  tender,  were,  nevertheless, 
to  be  accepted  for  all  payments  in  the  offices  of 


THROUGH  THE  CRISIS  OF  1884 

the  government.  Such  recognition  was  to  in- 
clude only  the  notes  of  the  Monte  de  Piedad, 
which  already  had  acquired  that  right.  And 
this  monopoly  granted  the  Banco  Nacional 
Mexicano  was  to  run  for  the  life  of  the  con- 
cession— thirty  years.  Branches  and  agencies 
were  authorized,  and  the  government  agreed 
to  make  use  of  them  in  its  Treasury  operations. 
The  bank  was  to  be  allowed,  in  return,  a  %  of  1 
per  cent,  charge  for  its  services.  The  capital  of 
the  bank  was  to  be  free  from  taxation  of  every 
character,  except  for  occupation  or  land  taxes 
(predial)*,  and  a  modified  stamp  tax.  It 
might  export,  free  of  duty,  the  necessary 
moneys  wherewith  to  make  payment  of  divi- 
dends on  its  foreign-held  shares.  In  case  of 
civil  war  the  government  agreed  that  there 
should  be  no  seizures  of  money  or  goods  be- 
longing to  the  bank.  From  the  viewpoint  of 
the  administration,  a  most  important  clause 
in  the  concession  was  that  which  carried  the 
agreement  of  the  bank  to  open  with  the 
Hacienda  a  credit  account  of  from  P200,000  to 
P400,000  per  month — or  a  maximum  of 
P4,000,000  per  fiscal  year.  The  interest  charge 
was  to  range  from  4  to  6  per  cent.  If  the  gov- 
ernment had  a  credit  balance  the  bank  was  to 
pay  interest  on  it.1 

1Lavalle,  Instltuciones  de  Credito  en  Mexico,  1809,  pp  13-14. 

15 


PRESENT  AND  PAST   BANKING   IN  MEXICO 

On  the  whole,  from  the  standpoint  of  the 
state,  there  had  not  in  its  history  been  so  favor- 
able a  borrowing  arrangement;  and  if  we  ex- 
clude the  failed  earlier  efforts,  this  was  the 
first  serious  attempt  to  make  use  of  banking 
machinery  in  the  operations  of  the  Treasury. 
Not  only  would  the  matter  of  collecting 
revenues  be  facilitated,  but  the  feeling  that 
always  there  was  a  borrowing  reserve  to  draw 
upon  in  case  of  need  was  an  element  of  great 
strength.  Without  doubt,  the  pressing  needs 
of  the  Gonzalez  government  operated  to  de- 
termine in  large  part  the  liberality  of  the  con- 
cession granted  the  Banco  Nacional  Mexicano. 
The  matter  of  creating  a  monopoly  of  the 
note-issuing  power  had  not  been  fully  weighed 
by  the  governing  group,  but  the  clever  men 
behind  the  bank  saw  their  opportunity,  nor 
would  they  miss  it;  and  it  was  an  advantage 
not  lightly  to  be  estimated,  as  we  shall  see  in 
the  days  when  charters  were  being  modified 
under  the  stress  of  the  general  banking  act. 

After  the  concession  to  the  Banco  Nacional 
Mexicano,  that  granted  to  L'Enfer  followed  in 
importance.  His  Banco  Mercantil,  Agricola  e 
Hipotecario — usually  known  as  Mercantil — 
chartered  for  thirty  years,  opened  its  doors 
March  27,  1882.  Its  capital  was  fixed  at 
P3,000,000,  and  it  was  authorized  to  emit  bills 


THROUGH  THE  CRISIS  OF  1884 

in  the  sum  of  three  times  the  volume  of  its 
cash  and  security  holdings,  and  to  issue  cash 
bonds  to  bearer  or  order — under  the  supervision 
of  an  intervenor  for  the  government.1 

The  Banco  Hipotecario  Mexicano,  under 
concession  of  March  21,  1882,2  had  a  capital  of 
P800,000,  and  its  operations  were  to  be  limited 
to  making  mortgage  loans  in  the  Federal  Dis- 
trict and  in  the  territory  of  Lower  California. 
Since  this  was  the  first  mortgage  bank  in  the 
country,  and  since  it  has  survived  to  the  pres- 
ent day,  let  us  examine  briefly  its  proposed 
functions. 

It  had  the  right:  (1)  to  emit  bonds  to  order 
or  bearer;  (2)  to  issue  time  cash  bonds;  (3)  to 
make  loans  to  individuals  and  corporations  on 
real  estate;  (4)  to  administer  for  a  time  proper- 
ties acquired  through  foreclosure;  (5)  to  buy 
and  sell  agricultural  products  and  machinery 
on  commission. 

It  could  make  loans  on  real  estate  not  in 
excess  of  50  per  cent,  of  its  value — first  mort- 
gages only.  In  August,  1888,  the  concession 
of  the  bank  was  modified  and  the  title  changed 
to  Banco  Internacional  e  Hipotecario.  Its 
field  was  extended  to  cover  the  whole  country, 
and  its  board  of  directors  might  be  divided 

1  Labastida,  Lcyes  Federalcs,  p.  541. 

2  Memoria  de  Hacienda,  1883-84,  p.  L. 

17 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

between  Mexicans  and  foreigners;  also,  certain 
operations  were  enlarged,  as,  for  instance,  it 
was  now  possible  for  the  bank  to  open  current 
accounts  to  depositors;  and,  in  effect,  it  be- 
came something  more  than  a  mortgage  bank.1 
It  was  also  authorized  to  make  loans  for  the 
improvement  of  public  or  private  property. 
Here  we  find  a  distinct  anticipation  of  the 
leading  feature  of  the  Banco  Refaccionario, 
with  which  we  shall  presently  deal. 

At  the  end  of  1882  there  were  in  operation 
in  the  Republic  a  mortgage  bank  (Hipote- 
cario  Mexicano)  and  five  banks  of  emission: 
the  Banco  de  Londres,  Mexico  y  Sud  America; 
Banco  Nacional  Mexicano;  Banco  Mercantil; 
Banco  Mexicano,  and  the  Banco  Minero  of 
Chihuahua. 

The  two  latter  had  been  founded  respectively 
under  state  legislative  authority  of  March  7, 
1878,  and  July  31,  1882.2  On  November  25, 
1883,  the  Banco  Santa  Eulalia — which  origi- 
nally had  opened  as  a  private  institution — took 
on  legislative  warrant.  Added  to  these  was  the 
insignificant  private  bank  of  Hidalgo,  also  in 
Chihuahua.  There  was  now  quite  a  little 
group  of  banks  in  that  far  northern  state,  and 
their  organization  is  largely  to  be  traced  to  the 

1  Labastida,  Leyes  Federates,  pp.  537-540. 
8  Memoria  de  Hacienda,  1884-85,  p.  39. 

18 


THROUGH  THE  CRISIS  OF  1884 

enterprise  of  English-speaking  citizens  who 
had  made  their  way  into  that  country  and  who 
already  had  come  to  control,  to  a  certain  ex- 
tent, commerce  and  finance.  The  name  of 
MacManus  came  to  be  well  known  to  the  over- 
land traders  from  Texas  into  Mexico.  The 
Banco  Minero  grew  up  under  the  influence  of 
the  prominent  Creel  family,  which  played  a 
conspicuous  part  in  the  later  political  and 
financial  fortunes  of  Mexico. 

With  remarkable  spontaneity  banks  here  and 
there  opened  their  doors,  now  under  state 
authority,  now  under  federal.  The  situation 
was  anomalous,  clearly  proving  the  need  of 
banking  institutions;  for  they  were  coming 
into  existence  with  no  clearly  defined  legal 
safeguards — a  situation  inherited  from  Spanish 
times,  for  Spain  had  had  no  laws  dealing  with 
corporations.  While  the  so-called  Mexican 
Code  of  Commerce  of  1854  had  recognized 
corporate  entities,  its  rules  had  long  since  fall- 
en into  disuse.  It  was  inevitable  at  once  that 
thinking  men  should  realize  the  urgent  need  of 
a  commercial  code,  and  such  code  was  soon 
indeed  to  be  formulated. 

Things  were  thus  marching  at  a  rapid  pace, 
due  to  railroad-building  enterprise  and  the  in- 
flowing of  foreign  capital.  The  far  greater 
quota  of  capital  now  invested  in  Mexico  was 

3  19 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

from  the  United  States.  The  movement  of 
Americans  into  that  country,  carrying  with 
them  their  properties,  was  but  a  continuation 
of  the  great  economic  flood-tide  which  had 
opened  up  the  Mississippi  Valley  and  the 
Western  states  for  settlement.  Moving  stead- 
ily with  the  procession  went  railroads,  and  soon 
they  had  penetrated  to  the  utmost  limits  of  the 
country.  Besides,  the  wave  of  industrial  ex- 
pansion in  the  American  states  easily  over- 
flowed the  narrow  Rio  Grande,  and  soon  prac- 
tically every  source  of  wealth  in  Mexico  felt 
the  touch  of  new  life. 

The  Monte  de  Piedad,  the  Banco  de  Londres, 
Mexico  y  Sud  America,  and  the  Banco  Na- 
cional  Mexicano  began  to  scatter  their  branches 
in  the  leading  cities  of  the  Republic;  deposits 
rose  with  unprecedented  rapidity.  On  account 
of  the  sums  of  money  which  accumulated  in  the 
vaults  of  the  banks  operating  in  Mexico  City, 
these  institutions  became  sharply  involved  in 
competition.  One  of  the  first  results  of  this 
was  the  lowering  of  the  interest  rate  from  12 
to  6  per  cent. ;  and  another  result  was  an  undue 
expansion  of  credits.  This  was  particularly 
unfortunate,  for  large  sums  were  put  out  in 
long-time  or  mortgage  loans.  By  the  middle 
of  1882  the  banks  had  so  far  impounded  their 
credits  that  there  began  actually  to  develop  a 

20 


THROUGH  THE  CRISIS  OF  1884 

stringency  in  the  money  market,  with  the  re- 
sult that  interest  rates  climbed  back  to  their 
original  positions,  and  beyond.  But  further 
than  this,  a  general  retrenchment  in  trade 
ensued. 

From  November,  1882,  to  early  spring  of  the 
following  year  the  tension  continued  unrelaxed, 
and  in  March  alarming  reports  began  to  be 
circulated  with  respect  to  the  condition  of  the 
Banco  Nacional  Mexicano.  A  run  was  started 
on  that  institution,  and  it  was  saved  only 
through  the  support  of  the  Banco  de  Lon- 
dres  and  the  Banco  Mercantil.  The  pressure 
exerted  on  the  Banco  Nacional  Mexicano  was 
chiefly  through  the  redemption  of  its  notes, 
and  in  this  connection  the  two  banks  men- 
tioned came  valiantly  to  the  rescue  and  con- 
tinued unhesitatingly  to  cash  the  notes  of  the 
embarrassed  bank.  The  run  was  stayed  in  a 
day,  and  the  situation  saved. 

In  the  mean  time  over  the  year  1882  a  con- 
troversy had  been  going  on  between  the  Monte 
de  Piedad  and  the  Banco  Nacional  Mexicano. 
Mutual  jealousy  and  distrust  were  in  evidence, 
for  the  Monte  de  Piedad  had  embarked  on  a 
strenuous  banking  career.  It  was  both  re- 
ceiving deposits  and  issuing  its  notes  under 
acts  of  September  6,  1879,  and  of  February  12 

and  July  5,  1881.    It  had  not  been  slow  in 

21 


PRESENT  AND  PAST ;  BANKING  IN  MEXICO 

getting  its  notes  into  circulation,  and  by  August, 
1881,  its  totals  outstanding  reached  P2,414,860. 
But  the  situation  of  the  country  was  so  satis- 
factory and  things  were  so  flourishing  that  de- 
posits in  all  the  banking  institutions  of  the 
country  mounted  rapidly.  By  the  end  of  1881 
the  specie  in  the  vaults  of  the  Monte  de  Piedad 
exceeded  P4,000,000;  but  by  May  1,  1882, 
while  the  notes  in  circulation  totaled  P4,168,- 
360,  specie  holdings  had  declined  to  P3,178,165. 
The  Monte  de  Piedad  had  involved  itself  in 
mortgage  loans  and  purchases  of  property,  and, 
in  short,  had  invested  goodly  sums  in  securities 
not  susceptible  of  early  liquidation.1 

Such  condition,  of  course,  meant  trouble 
for  the  Monte  de  Piedad.  It  managed,  how- 
ever, to  weather  the  rather  panicky  March 
days,  when  its  rival  came  so  nearlyjto  suc- 
cumbing, but  its  position  turned  worse  over 
1883,  as  the  depression  deepened  in  all  lines  of 
activity.  Panicky  conditions  prevailed  through- 
out the  world.  The  effects  of  the  curtailment 
of  capital  for  Mexican  industries,  which  had 
been  so  freely  supplied  from  the  United  States 
and  foreign  countries,  soon  came  to  be  felt 
universally. 

By  the  early  spring  of  1884  the  situation 
of  the  Monte  de  Piedad  came  to  be  hopeless, 

1  I$,valle,  Instituciones  de  Credito  en  Mexico,  pp.  15-16, 

22 


THROUGH  THE  CRISIS  OF  1884 

and  it  may  be  added  that  the  situation  of  the 
Treasury  of  Mexico  was  in  equally  precarious 
plight.  The  government,  spite  of  the  more  or 
less  desperate  case  in  which  the  Monte  found 
itself,  continued  to  borrow  from  it;  and  by 
April  29th,  the  date  of  its  closing,  owed  the  insti- 
tution P550,705,  a  debt  which  had  not  been 
fully  paid  even  so  late  as  1892,  when  a  balance 
due  was  disclosed  of  P49,125.1 

The  banks  of  the  capital  were  not  ignorant 
of  the  condition  of  the  Monte  de  Piedad,  nor 
were  they  surprised  when  a  run  was  started. 
And  well  enough  they  knew  what  effect  would 
follow  its  closing,  hence  they  exercised  them- 
selves to  the  utmost  to  save  it.  Specie  was 
actually  advanced  by  the  Banco  Nacional 
Mexicano  in  a  total  of  P232,000,  and  for  two 
days,  at  the  height  of  the  run,  the  banks  con- 
tinued to  receive  the  notes  of  the  Monte  de 
Piedad  in  a  futile  attempt  to  keep  open  its 
doors. 

The  Monte  suspended  specie  payment  April 
29, 1884,  and  the  public  was  thrown  into  panic. 
There  were  still  outstanding  notes  approximat- 
ing P2,000,000,  therefore,  in  order  to  stabilize 
things — the  other  banking  institutions  were 
suffering  from  incipient  runs — the  govern- 
ment, on  May  1st,  issued  a  decree  stipulat- 

1  Memoria  de  Hacienda,  1891-92,  p.  72. 

23 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

ing  that  it  would  receive  in  its  offices  20  per 
cent,  of  all  tax  payments  in  bills  of  the  Monte 
de  Piedad.1  This  the  administration  could 
safely  do,  for  it  was  in  debt  to  the  Monte 
better  than  half  a  million — a  sum  which  might 
easily  have  saved  that  institution.  But  the 
government  was  unable  to  return  this  money. 
However,  its  action  in  recognizing  the  notes 
served  a  very  necessary  purpose  in  abating  the 
public  alarm.  Further  than  this,  the  support 
lent  the  Monte  was  a  wise  political  stroke  on 
the  part  of  the  government.  It  would  tend  to 
curry  favor  with  the  masses,  who  during  the 
more  than  century  of  existence  of  that  institu- 
tion had  come  to  look  upon  it  as  a  precious 
heritage.  And  such  it  was,  doubtless,  al- 
though some  have  charged  it,  in  this  later  day, 
with  extortion  and  usury.  At  all  events,  the 
support  of  the  government  had  been  ample, 
for  soon  the  Monte  was  enabled  to  resume 
business.  But  it  has  issued  no  more  notes  to 
this  day. 

LMenuma  de  Hacienda,  1883-84,  p.  LXXXIX. 


m 

CODE   OF   COMMERCE   OF   1884 

rjlHE  run  on  the  Banco  Mexicano  in  March, 
A  1883 — with  the  ensuing  confusions  lasting 
over  the  year,  culminating  in  the  crash  of  the 
Monte  de  Piedad — brought  forcibly  to  the  at- 
tention of  the  government  the  need  of  order 
in  its  credit  institutions  and  of  a  higher  measure 
of  control  over  them.  The  years  1883-84  in 
Mexico  were  hard,  indeed,  partly  due  to  local 
causes  and  partly  to  the  paralyzing  of  business 
relations  with  the  United  States  and  foreign 
countries,  where  depressed  conditions  border- 
ing on  panic  prevailed.  Gonzalez  and  his 
ministers  were  sorely  pressed  for  funds  to 
meet  the  current  operations  of  the  state.  It 
is  the  more  remarkable  that  they  should  have 
given  so  much  thought  to  the  organization 
and  control  of  banks.  Explanation  is  found 
probably  in  the  fact  that  the  presence  of  banks 
was  recognized  by  the  authorities,  not  only  as 
strengthening  the  general  economic  status,  but 
also  as  offering  points  of  refuge  for  the  govern- 

25 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

ment  in  its  financial  emergency.  The  question 
of  accessibility  of  credits  was  one  which  ap- 
pealed then,  as  now,  to  the  political  leaders. 
Of  this  there  is  evidence  enough  in  the  relations 
of  the  government  with  the  Monte  de  Piedad 
and  in  the  requirements  fixed  in  the  charters 
of  banks,  as,  for  instance,  in  that  of  the  Banco 
Nacional  Mexicano.  The  money  the  govern- 
ment had  borrowed  of  the  Monte  de  Piedad, 
and  those  sums  promised — and  which  were 
daily  being  advanced  by  the  Banco  Nacional 
Mexicano  and  by  the  Banco  Hipotecario 
Mexicano — were  of  vital  concern. 

Truly,  the  impoverished  Treasury  was  partly 
responsible  for  the  panicky  state  of  things  in 
the  country  at  large.  The  annual  revenues  of 
the  country  had  fallen  by  at  least  P3,000,000, 
and  heavy  arrears  were  due  through  past  fiscal 
operations,  particularly  in  the  form  of  sub- 
sidies to  railroads.  Besides,  there  was  a  large 
floating  indebtedness  held  by  clamorous  and 
persistent  creditors.  Finally,  more  than  87 
per  cent,  of  the  customs  dues  had  been  as- 
signed to  secure  the  public  debt,  while  the 
revenues  from  a  number  of  sources  were  mort- 
gaged to  the  Banco  Nacional  Mexicano  to 
cover  its  loans  to  the  government.  The  re- 
ceipts from  the  national  lottery  and  from  the 
direct  taxes  in  the  Federal  District  were  also 

26 


CODE  OF  COMMERCE  OF  1884 

hypothecated  to  the  Banco  Nacional  Mexicano. 
The  mints  of  the  country  were  mortgaged  to 
their  lessees  in  a  total  of  almost  P2,500,000, 
while  some  of  the  public  buildings  were  soon 
to  be  mortgaged  to  the  Banco  Hipotecario  for 
more  than  Pi, 000,000. *  The  economic  situa- 
tion was  serious  in  the  extreme.  The  low 
price  of  silver  had  depressed  the  mining  in- 
dustry; crop  failures  for  two  successive  years 
had  raised  unduly  the  prices  of  agricultural 
products;  and  all  industry  suffered  in  the  gen- 
eral demoralization. 

Considering  the  situation  as  a  whole,  the 
Gonzalez  administration  did  indeed  carry  for- 
ward a  progressive  program  with  respect  to 
banks.  While  it  is  true  that  banks  came  into 
existence  without  government  initiative,  it  is 
nevertheless  true  that  the  government  fostered 
them  in  all  possible  ways.  It  realized  its  re- 
sponsibility in  the  premises,  however,  and 
came  trailing  after,  enacting  measures  calcu- 
lated to  catch  up  the  ends  of  things.  Says 
De  la  Pena,  Minister  of  Hacienda: 

Feeling  the  necessity  of  passing  *a  general  law  for 
banks,  the  Congress  of  the  Union  .  .  .  authorized  the 
Executive  by  act  of  December  15  [1883]  to  promulgate 
a  Code  of  Commerce  which  should  include  the  general 

1  Barrera  Lavalle,  Las  Instituciones  de  Cr£dito  de  la  Republica,  Nos. 
I  and  2,  vol.  xxxiv,  El  Economista  Mexicano. 

37 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

bases  to  which  banking  institutions  must  conform.  In 
the  exercise  of  this  authority  the  Code  was  issued,  and 
under  heading  13  the  principles  were  laid  dowa  for  the 
control  of  banks.1 

The  Code  of  Commerce  to  which  De  la  Pena 
referred,  promulgated  April  20,  1884,  had  been 
preceded  in  the  course  of  Mexican  history  by 
one  published  in  1854  under  the  direction  of 
Santa  Ana,  the  dictator  of  Mexico.  That 
code  was,  in  its  day,  a  rather  interesting  docu- 
ment. One  of  the  chief  reasons  underlying  its 
enactment  is  found  in  Santa  Ana's  tax  scheme, 
which  was  designed  to  serve  his  centralized 
form  of  government. 

The  code  of  1854  was  divided  into  five 
sections : 

1.  That  dealing  with  merchants  and  agents 
of  industry. 

2.  That  having  to  do  with  internal  commerce. 

3.  That  touching  maritime  trade. 

4.  That  concerning  bankruptcies. 

5.  That  dealing  with  the  administration  of 
justice  in  business  operations. 

A  few  paragraphs  in  the  code  dealt  with  the 
instruments  of  commerce.  There  were  rules 
regulating  the  circulation  of  bills  payable,2 

1  Memoria  de  Hacienda,  1 883-  84,  p.  LI. 

2  Cddigo  de  Comercio  de  Mexico,  Mexico,  1854,  pp.  75-77. 

£8 


CODE  OF  COMMERCE  OP  1884 

and  rules  defining  loosely  the  relation  of  de- 
positor and  receiver  of  funds.1  Also,  it  must 
be  added  that  the  question  of  drafts  received 
due  consideration.  The  rules  for  the  drawing 
of  the  instrument,  for  its  acceptance,  fixing 
the  responsibility  of  indorser,  and  the  matter 
of  protest — all  had  careful  attention.2 

There  is  ample  evidence  of  the  fact  that  the 
new  Code  of  Commerce  of  1884  was  drawn 
by  men  who  had  before  them  Santa  Ana's 
code  of  thirty  years  earlier.  But  great  changes 
had  come  over  the  face  of  things  in  Mexico 
during  the  interval,  and  the  code  prepared  un- 
der Gonzalez3  dealt  far  more  intelligently  with 
the  subject-matter  than  did  that  of  Santa 
Ana.  For  the  purposes  of  this  study  we 
shall  confine  ourselves  to  that  section  of  the 
code  which  refers  to  credit  institutions.  How- 
ever, it  may  be  well  to  say  that  the  preliminary 
article  refers  to  all  the  inhabitants  of  the 
country  who  engage  in  commerce  as  being  sub- 
ject to  the  Code  of  Commerce;  that  they  are 
Mexican  in  character,  and  can  make  no  appeal 
to  other  jurisdictions.4 

At  the  outset  of  the  article  dealing  with 


1  Cddigo  de  Comer  do  de  Mexico,  Mexico,  1854,  pp.  79-80. 

2  Ibid.,  pp.  83-104. 

3  Codigo  de  Comercio  de    los  Eatados    Unidos    Mexicanos,  Jalapa, 
1884,  pp,  306.  *Ibid.,  p.  8. 

29 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

banking  matters  the  following  paragraph  ap- 
peared : 

Banks  of  emission  and  circulation,  discount,  deposit, 
mortgage,  agriculture,  mining,  or  for  any  other  com- 
mercial purpose,  cannot  be  established  in  the  Republic 
without  the  authority  of  the  Minister  of  Hacienda,  in 
the  judgment  of  the  Executive,  and  without  complying 
with  the  requirements  and  conditions  established  in 
this  code. * 

It  was  a  categoric  statement,  and  left  noth- 
ing^in  doubt  with  respect  to  what  was  proposed 
to  be  done  by  the  administration.  The  Code 
then  continued,  and  the  following  large  fun- 
damentals were  announced: 

1.  Only  corporations  with  at  least  five  share- 
holders could  be  established. 

2.  Banks  must  have  a  minimum  capital  of 
P500,000,  with  50  per  cent,  paid  up  in 
Mexican  coinage  prior  to  opening.    The 
balance  of  the  capital  must  be  paid  in 
by  instalments  within  a  year. 

3.  Banks  were  forbidden  to  own  land  ex- 
cept for  buildings.     If  necessary  to  ac- 
quire real  estate  in  the  foreclosure  of 
debt,  the  same  must  be  sold  within  two 
years  unless  a  mortgage  bank  were  in- 

1  C6digo  de  Comercio  de  los  Estados  Unidos  Mexicanos,  Jalupa, 
1884,  p.  171.  i 

30 


CODE  OP  COMMERCE  OF  1884 

volved  in  the  transaction,  in  which  case 
five  years  were  allowed. 

4.  When   the   bank   shall   have   been   or- 
ganized, and  the  by-laws  approved  by 
the  Minister  of  Hacienda,  it  could  open; 
notes  could  be  issued  in  no  case  in  excess 
of  the  paid  capital. 

5.  To  emit  notes  the  bank  must  make  a 
deposit  in  gold  or  silver  Mexican  coin  for 
one-third  the  total  of  the  notes  proposed 
for  issue,  or  make  a  bond  to  cover  the 
whole  amount — at  the  option  of  the  bank. 

6.  This  guarantee  deposit  is  to  be  made  in 
the  Treasury,  whence  it  can  be  with- 
drawn only  by  substitution  of  like  sum 
in  bonds  of  the  public  debt,  or  by  replac- 
ing it  with  a  bond,  or  through  the  retire- 
ment of  the  notes  in  circulation,  or  by 
order  of  a  judge  in  charge  of  a  failed  bank 
for  payment  of  notes. 

7.  In  case  of  the  funding  of  the  public  debt 
through  the  issue  of  new  securities  the 
money  on  deposit  for  the  guarantee  of  notes 
may  be  converted  into  the  new  bonds. 

8.  All  notes  must  be  inspected  and  stamped 
by  the  Minister  of  Hacienda  before  being 
put  in  circulation. 

31 


PRESENT  AND  PAST   BANKING   IN  MEXICO 

9.  Notes  have  not  the  status  of  legal  tender 
(cur  so  forzoso). 

10.  All  banks  are  required  to  keep  in  cash 
one-third  of  outstanding  circulation.    De- 
posits at  three  days'  sight  or  thirty  days' 
time  must  be  deducted  from  the  balances 
prior  to  making  calculation  of  one-third 
reserve  requirement. 

11.  Banks  were  forbidden  to  hypothecate 
their  notes,  to  make  loans  on  their  own 
shares  of  stock,  to  establish  residence  out- 
side of  the  national  domain. 

12.  Monthly  statements  were  required, which 
were  to   be   published   in   the  Diario 
Oficial. 

13.  An  intervenor  for  each  bank  was  to  be 
appointed  to  report  on  the  conduct  of  the 
bank,  especially  with  regard  to  compli- 
ance with  the  terms  of  the  code. 

14.  "No  banking  association  or  individual 
established  in  a  foreign  country  can  have 
in  the  Republic  agencies  or  branches 
authorized  to  cash  the  notes  which  it 
emits,  regardless  of  their  form." 

15.  "No  individual  or  association  not  au- 
thorized  by    the    terms    of   this   code 
shall    emit    certificates,    notes,    or   in- 

33 


CODE  OF  COMMERCE  OF  1884 

struments  promising  to  pay  in  cash  at 
sight  to  bearer,  whether  in  the  form  of 
notes,  deposit  receipts,  or  any  other 
form."  There  was  a  penalty  attached 
to  infraction  of  this  rule  of  10  per  cent, 
of  all  sums  issued. 

16.  "Associations  formed  in  foreign  coun- 
tries to  undertake  the  establishment  of 
banks  in  the  Republic,  of  whatever  char- 
acter, must  organize  themselves  in  ac- 
cordance with  the  terms  of  this  code; 
not  only  they,  but  the  shareholders  also— 
who  take  on  the  character  of  Mexicans, 
without  right  of  appeal  to  foreign  coun- 
tries in  the  matter  of  the  bank — must  be 
subject  to  Mexican  laws." 

17.  Mortgage  banks  were  prohibited  from 
circulating  notes,  but  could  issue  bonds 
in  a  total  equal  to  the  mortgages  ac- 
quired. 

18.  Banks  were  given  the  right  to  sell  mort- 
gaged property  immediately  on  the  ma- 
turing of  the  note.     The  sale  was  to 
be  made  by  the  intervenor  to  the  highest 
bidder. 

In  addition  to  the  above  articles,  which  con- 
stituted the  skeleton  of  the  banking  section  of 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

the  code,  there  were  important  transitory 
rules  which  were  intended  to  cover  the  period 
during  which  it  was  hoped  that  all  banks  in 
the  Republic  could  be  brought  under  the  con- 
trol of  the  government.  These  stringent  regu- 
lations were  as  follows : 

The  banks  of  emission  and  circulation  established  in 
the  Federal  District,  as  well  as  those  established  in  other 
parts  of  the  Republic  without  previous  authorization  of 
the  Congress  of  the  Union,  may  no  longer  emit  nor 
circulate  notes,  save  under  the  conditions  set  out  in  the 
following  articles. 

The  conditions  referred  to  have  been  set  out 
above.  Penalty  for  non-compliance  with  the 
code  brought  liquidation  upon  offending  banks. 

The  Monte  de  Piedad  was  regarded  as  a 
state  institution.  All  other  banks  in  the  Re- 
public, save  the  Banco  de  Londres,  Mexico  y 
Sud  America,  and  the  Chihuahua  banks,  were 
operating  under  the  approval  of  the  Mexican 
Congress.  What  the  government  had  now  suc- 
ceeded in  doing  was  not  to  force  uniformity 
on  the  banks  of  the  country,  but  to  bring  them 
under  federal  supervision.  This  was  the  big 
point  gained,  but  much  remained  to  be  done. 
Whether  the  banking  institutions  existing  by 
right  of  law  in  the  Republic,  and  in  contraven- 
tion of  the  code,  could  be  brought  under  its 

34 


CODE  OF  COMMERCE  OF  1884 

terms  was  a  problem  which  only  the  future 
could  determine.  At  all  events,  the  Code  of 
Commerce  1  served  its  purpose  in  checking  the 
organization  of  state  banks,  and  indeed  gave  a 
definiteness  to  credit  institutions  hitherto  un- 
known in  Mexico. 


1  The  section  of  the  Code  of  Commerce  of  1884  dealing  with  banks 
is  largely  contained  within  pp.  171-172,  178.  The  Transitory  Clauses 
quoted  are  found  on  pp.  291-293. 

4 


IV 

ORIGIN   OF  THE   BANCO   NACIONAL 

IT  is  not  a  little  significant  that  the  prepara- 
tion and  promulgation  of  the  Code  of  Com- 
merce were  coincident  with  the  final  nego- 
tiations for  the  consolidation  of  the  Banco 
Nacional  Mexicano  and  the  Banco  Mercantil. 
Just  what  part  these  banks  played  in  the  mat- 
ter of  the  code  we  may  not  know,  but  the 
government  was  relying  upon  them  for  advice 
and  support. 

Intimate  relations  had  sprung  up  between  the 
directors  of  these  two  banks  during  the  run  on 
the  Banco  Nacional  Mexicano;  relations  were 
further  cemented  during  the  troubles  of  the 
Monte  de  Piedad.  In  fact,  the  crisis  in  the 
affairs  of  the  Monte  may  have  hastened  the 
signing  of  the  agreement  of  consolidation  on 
April  2,  1884.  This  contract  was  approved  by 
the  Mexican  Congress,  May  31st,  and  on  that 
day  the  government  availed  itself  of  the  credit 
which  had  been  granted  by  the  consolidated 
bank.  It  also  set  about  preparing  certificates 


ORIGIN  OF  THE  BANCO  NACIONAL 

covering  15  per  cent,  of  customs  dues  *  as- 
signed as  security. 

But  the  completed  union  of  the  banks  was 
not  realized  until  after  the  reform  of  the  con- 
cession of  the  Banco  Nacional  Mexicano  and 
the  fulfilment  of  the  conditions  of  the  con- 
tract on  June  3d  following,  with  respect  to  the 
increase  of  the  capital  to  P20,000,000,  40  per 
cent.  paid.  Thereupon  the  Banco  Nacional  de 
Mexico  came  into  existence  and  the  Banco 
Nacional  Mexicano  and  the  Banco  Mercantil 
disappeared. 

The  Mercantil,  during  the  crisis  of  1884,  had 
acquired  considerable  holdings  of  bills  of  the 
Nacional  Mexicano,  and  its  efforts  to  support 
the  strained  situation  were  warmly  appreciated. 
The  Nacional  Mexicano  had  excellent  foreign 
connections,  whereas  the  Mercantil  had  a 
strong  alliance  with  the  commercial  and  indus- 
trial elements  of  the  Republic.  This  combina- 
tion appeared  most  admirable;  and  further,  on 
account  of  the  amassing  of  capital  and  the 
unusual  talent  assembled,  the  union  gave  prom- 
ise of  a  brilliant  future. 

The  question  of  the  reformation  of  the  con- 
cession of  the  Banco  Nacional  Mexicano  was 
under  consideration  by  the  government  for 
some  time.  The  matter  was  definitely  involved 

1  Memoria  de  Harienda,  1883-84,  p.  232. 

37 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

with  the  fusion  of  the  two  strong  banks,  and 
led  to  a  warm  discussion  in  the  Mexican  Senate. 
The  problem  was  whether  one  large  bank,  with 
exclusive  rights  of  issue,  etc.,  was  better  than 
two  or  more.  At  all  events,  the  advocates  of 
the  single  institution  were  successful,  and  on 
May  15, 1884,  the  reformed  charter  was  signed. 
It  will  be  recalled  that  the  original  conces- 
sion to  the  Banco  Nacional  Mexicano  had  been 
granted  August  16,  1881;  that  it  had  been  ap- 
proved by  the  Mexican  Congress  on  November 
1 6th  following.  The  terms  of  that  concession  we 
have  briefly  canvassed  heretofore.  The  essen- 
tial stipulations  of  the  modified  charter  were 
as  follows:1 

1.  The  name  was  changed  to  the  Banco 
Nacional  de  Mexico,  with  domicile  in 
Mexico  City,  and  authorized  to  create 
branches  and  agencies  throughout  the 
Republic.  The  capital,  within  six  months, 
was  to  be  increased  to  P20,000,000— 
40  per  cent,  minimum  to  be  paid — and 
the  bank  was  authorized  to  issue  notes 
three  times  the  volume  of  the  precious 
metals  contained  in  its  vaults.  Notes 
were  to  be  of  denominations  ranging 
from  PI  to  Pl,000. 


1  Memoria  de  Hacienda,  1883-84,  pp.  5203-08. 


ORIGIN  OF  THE  BANCO  NACIONAL 

2.  There  were  to  be  two  government  inter- 
venors  named  to  supervise  the  emission 
of  notes  and  the  general  operations  of 
the  bank. 

3.  The  notes  issued  were  to  be  received  by 
the  government  in  all  its  offices,  but  were 
not  legal  tender. 

4.  The  bank  was  to  open  to  the  government 
an  account  current,  to  run  from  P6,000,- 
000  to  P8,000,000  per  year.     A  mutual 
interest  rate  of  6  per  cent,  was  adopted, 
the  charge  to  be  entered  daily.     For  its 
part,  the  government  was  to  secure  the 
bank  with  certificates  of  importation  for 
its  advances,  and  the  accounts  were  to  be 
balanced  January  1st  and  July  1st. 

5.  In  return  for  these  concessions  the  gov- 
ernment obligated  itself  not  to  establish 
any  new  banks  of  emission  in  the  Repub- 
lic, and  those  then  established  must  com- 
ply with  the  terms  of  the  Code  of  Com- 
merce of  April  20,  1884. 

6.  The  bank  became  the  government  de- 
positary for  money,  securities,  and  metals, 
for  trusts,  etc.,  in  all  its  branches.     On 
deposit  of  securities  or  metals,  the  bank 
was  to  receive  as  fee  J^  of  1  per  cent. 

39 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

No  charge  was  to  be  made  for  receiving 
cash  on  deposit. 

7.  The  bank  was  charged  by  the  govern- 
ment with  looking  after  the  public  debt, 
interior  and  exterior.     The  bank  was  to 
receive  funds  destined  for  the  payment 
of  interest  and  amortizations,  and  was  to 
make  payments   to  bondholders.     The 
commission  for  this  service  was  to  be  ar- 
ranged on  each  occasion. 

8.  The  government  agreed  to  make  exclu- 
sive use  of  the  facilities  of  the  bank  and 
its  branches. 

9.  The  federal  authorities  should  not  re- 
ceive in  payment  of  taxes  the  notes  of 
any  other  institution  of  credit  now  es- 
tablished, or  to  be  established,  other  than 
those  of  the  Banco  Nacional  de  Mexico — 
or  paper  money  of  any  other  sort.  Excep- 
tion was  made  for  three  years  to  the 
notes  of  the  Monte  de  Piedad. 

10.  The  bank  was  made  exempt  from  all 
taxes  except  the  predial  (real  estate),  and 
a  modified  stamp  tax. 

11.  The  clause  we  have  seen  before  with  re- 
spect to  war  dangers  was  also  included. 

40 


ORIGIN  OF  THE  BANCO  NACIONAL 

12.  Secrecy  of  accounts  and  business  was 
guaranteed.  Information  was  to  be  given 
only  on  judicial  order.     The  directors  of 
the  bank  must  have  had  five  years  of 
residence  in  Mexico,  and  the  bank  was 
to  be  considered  a  Mexican  corporation, 
even  if  its  shareholders  lived  abroad. 

13.  The  concession  and  contract  ran  for  fifty 
years. 

14.  The   increase   of   capital   provided   for 
came  with  the  absorption  of  the  Banco 
Mercantil. 

15.  It  was  agreed  that  if  the  consolidation 
of  the  Banco  Nacional  Mexicano  and  the 
Banco  Mercantil  was  effected,  the  notes 
of  the  Banco  Mercantil  should  continue 
in  circulation  unless  the  combined  totals 
of  the  notes  of  the  two  institutions  should 
exceed  the  limit  fixed  by  law.    It  was  fur- 
ther agreed  that  the  notes  of  both  banks 
were  to  be  retired  within  two  years — that 
is  to  say,  they  were  to  be  substituted  by 
notes  of  the  Banco  Nacional. 

16.  It  was  provided  that  the  bank  could  not, 
under  any  circumstances,  be  sold  to  a 
foreign   government.     Monthly   reports 
of  condition  were  required. 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

The  month  of  April,  1884,  is  memorable  for 
the  consummation  of  the  consolidation  of  the 
Banco  Nacional  de  Mexico  and  the  Banco 
Mercantil,  for  the  promulgation  of  the  Code  of 
Commerce,  and  for  the  crash  of  the  Monte  de 
Piedad.  Events  had  hurried  on  breathlessly. 
The  facts  are  that,  while  the  code  was  being 
prepared,  negotiations  for  the  union  of  the  two 
banks  were  progressing,  and  the  terms  of  the 
contract  between  the  government  and  the  new 
bank  were  being  discussed.  These  facts  must 
be  considered  as  being  directly  related  to  one 
another.  Also,  there  was  bound  up  in  the  con- 
siderations the  problem  of  the  fiduciary  cur- 
rency in  circulation. 

Distinctly  in  the  background,  too,  loomed 
the  need  of  the  government  for  financial  sup- 
port. So  clearly  is  this  evidenced  that  Presi- 
dent Gonzalez,  by  decree  of  January  9, 1884 — 
in  consummation  of  an  arrangement — ordered 
the  delivery  to  the  Banco  Nacional  Mexicano 
of  customs  dues  certificates  (certificados  de 
importation)  in  a  total  of  P5,761,000,  to  cover 
a  provisional  loan  to  be  advanced  by  the  bank 
in  weekly  instalments.  This  decree  was  is- 
sued under  warrant  of  laws  of  May  26  and  De- 
cember 14,  1883.1  These  certificates  were  re- 
quired in  all  customs  payments — and  took  on 

1  Memoria  de  Hacienda,  1883-84,  p.  192. 

42 


ORIGIN  OF  THE  BANCO  NACIONAL 

the  character  of  forced  admittance  to  the  cus- 
toms offices  and  the  offices  of  internacion 
(an  internal  tax  on  goods). 

Up  to  February  29th  35  per  cent,  of  all 
dues  were  ordered  to  be  paid  in  these  cer- 
tificates; but  from  March  1st  the  ratio  was 
to  rise  to  45  per  cent.  The  bank  was  to 
put  the  certificates  in  the  hands  of  its 
agents  in  the  ports,  where  they  were  readily 
available.  They  were  to  be  sold  at  par,  and 
any  infraction  of  the  rule  was  to  be  severely 
punished. 

The  borrowing  operations  of  the  government 
went  still  farther.  On  February  22,  1884, 
loans  were  made  from  the  Banco  Nacional 
Mexicano,  Banco  Mercantil,  and  the  Monte  de 
Piedad.  The  total  of  these  loans  approximated 
Pi, 288,660,  against  which  certificates  of  im- 
portation were  issued  as  security.1  And  four 
days  later  the  Mercantil  agreed  to  advance  an 
additional  Pi, 535,000,  and  received  certificates 
as  security.2  Besides,  coincident  with  the 
final  agreement  on  the  terms  of  the  new  conces- 
sion to  the  Banco  Nacional,  a  loan  of  P4,000,000 
was  granted  to  the  government. 

As  mentioned  above,  the  question  of  the 
consolidation  of  the  Banco  Nacional  Mexicano 
and  the  Banco  Mercantil  aroused  unusual  in- 

1  Memoria  de  Hacienda,  1883-84,  pp.  197-198.  2  Ibid.,  p.  198. 

43 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

terest  in  the  Mexican  Congress.  There  was  a 
division  over  the  proposition  as  to  whether  a 
large  central  bank,  with  exclusive  powers,  was 
preferable  to  a  multiplicity  carrying  on  similar 
functions.  De  la  Pena,  the  Minister  of  Ha- 
cienda, reported  that  the  fusion  of  the  two 
banks  had  the  sanction  of  the  public,  and  that 
conditions,  internal  and  external,  warranted 
the  establishment  of  "a  bank  capable  of  facing 
successfully  any  emergency,  of  systematizing 
amply  and  securely  the  fiduciary  currency." 
Then  he  went  on  to  say: 

Without  pronouncing  absolutely  in  favor  of  one  or 
the  other  system,  the  Executive  believed  that  in  the 
present  situation  a  multiplicity  of  credit  institutions, 
without  some  guaranties  to  the  public,  might  be  sub- 
ject to  grave  upheavals  and  to  the  danger  of  bankrupt- 
cies, which  would  drag  down  great  and  small  fortunes, 
thus  compromising  the  dearest  interests  of  society.  He 
considered  also,  having  in  mind  the  conditions  of  the 
Republic,  that  the  banks  now  operating,  all  of  which 
enjoyed  the  confidence  of  the  public,  had  ample  resources 
to  carry  on  the  operations  for  which  they  were  designed. 
They  were  sufficient  to  aid  commerce,  the  mining  and 
agricultural  industries,  and  to  render  fruitful  the  na- 
tional wealth.  For  all  of  these  reasons,  the  stipulations 
proposed  by  Eduardo  Noetzlin,  representing  the  Banco 
Nacional  Mexicano,  for  the  reform  of  the  concession  of 
that  establishment  were  accepted;  and  on  May  15,  1884, 
a  contract  was  signed,  careful,  nevertheless,  that  its 

41 


ORIGIN  OF  THE  BANCO  NACIONAL 

stipulations  should  not  be  construed  to  carry  exclusive 
rights  against  credit  institutions  being  constituted  in 
the  future  with  powers  of  emission.1 

With  the  enactment  of  the  Code  of  Com- 
merce, Mexico  had  prepared  the  way  for  a  great 
advance  in  banking.  The  grounds  were  cleared, 
in  a  sense,  and  made  ready  for  the  pioneers 
who  soon  were  to  troop  in  with  their  invest- 
ments. The  union  of  the  Banco  Nacional  Mexi- 
cano  and  the  Banco  Mercantil  was  a  prime 
event  in  the  financial  history  of  the  countiy, 
for  not  only  did  its  influence  affect  business  to 
the  borders,  but  the  fact  of  its  organization 
directly  modified  the  attitude  of  European 
capitalists  toward  Mexican  problems. 

The  matter  of  the  public  debt,  which  had 
gone  for  so  long  largely  in  default,  at  once  re- 
flected in  the  markets  a  more  favorable  esti- 
mate of  the  financial  situation.  It  was,  in- 
deed, a  great  deal  to  have  an  institution  with 
almost  P10,000,000  in  capital  and  surplus 
agreeing  to  look  after  the  details  of  the  debt. 
In  the  eyes  of  creditors  at  home  and  abroad, 
this  could  have  but  one  ultimate  effect,  and  it 
is  to  the  great  credit  of  Gonzalez  and  his  ad- 
visers that  they  entered  upon  the  way  of  sound 
readjustment  of  the  obligations  of  the  govern- 
ment. The  pressure  of  foreign  creditors  had 

1  Memoria  de  Hacienda,  1883-84,  pp.  XC-XCI. 

45 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

been  unremitting,  and  Congress  had  enacted 
a  law  on  January  14,  1883,  authorizing  Presi- 
dent Gonzalez  to  make  some  arrangement  of 
the  public  debt.  He  had  set  about  this,  but 
with  little  success,  for  the  government  was  on 
a  deficit  basis.  Besides,  because  of  the  serious 
economic  condition  of  the  country,  nothing 
could  be  done  toward  paying  outstanding  com- 
mitments. Nevertheless,  on  June  10,  1884,  a 
contract  was  made  with  Edward  Noetzlin,  of 
the  Banco  Nacional,  conferring  on  him  power 
to  arrange  the  foreign  debt.  He  soon  entered 
into  an  agreement  with  the  English  bond- 
holders ;  however,  because  of  certain  conditions 
carried  in  the  agreement,  it  required  the  sanc- 
tion of  Congress.1  There  it  was  much  debated, 
but  nothing  resulted  for  the  moment;  the  whole 
matter  was  left  to  Porfirio  Diaz,  who  soon  was 
to  take  up  the  threads  on  returning  to  power 
as  President. 

The  administration  of  Gonzalez  terminated 
December  1,  1884.  A  brief  resume  of  its 
achievements  with  respect  to  banks  may  well 
be  in  order.  When  Gonzalez  came  into  office, 
there  were  in  operation  in  the  Republic  only 
the  Banco  de  Londres,  Mexico  y  Sud  America; 
the  Monte  de  Piedad,  and  two  small  banks  in 
Chihuahua.  When  he  retired  there  were  in 

1  Memoria  de  Hacienda,  1884-85,  pp.  12-13. 

46 


ORIGIN  OP  THE  BANCO  NACIONAL 

existence,  in  addition,  the  powerful  Banco 
Nacional,  the  Banco  Hipotecario  Mexicano, 
Banco  de  Empleados,  and  two  small  banks  in 
Chihuahua.  While  the  latter  were  in  no  direct 
sense  related  to  the  federal  system,  they  were 
already  feeling  the  power  of  the  central  au- 
thority; for  the  Code  of  Commerce  had  caught 
them  and  they  were  doomed  in  the  end  to  bow 
to  its  mandates. 

It  is  a  striking  fact  that  the  Code  of  Com- 
merce of  1884  contains  not  only  the  rules 
governing  in  the  realm  of  banking  for  the  next 
thirteen  years,  but  also  the  bases  on  which 
Limantour  later  erected  his  state  banking  sys- 
tem. The  provisions  relative  to  banks  of 
emission  and  to  mortgage  banks  were  sub- 
stantially incorporated  in  the  law  of  March 
19,  1897,  and  little  was  added  in  the  way  of 
fundamentals. 

On  June  30,  1884,  there  appeared  the  first 
public  financial  statement  of  the  condition  of 
banks  in  Mexico.  It  is  not  without  interest, 
foreshadowing,  as  it  does,  the  larger  unfolding 
which  soon  was  to  appear. 

The  Banco  Hipotecario  Mexicano,  it  will  be 
recalled,  had  been  granted  a  special  conces- 
sion. Its  operations  were  soon  to  disclose  the 
difficulties  it  had  need  to  surmount  in  order  to 
achieve  success.  The  chief  of  these  lay  in  the 

47 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

inability  of  the  institution  to  dispose  of  its 
bond  issues.  Ten  years  after  this  first  state- 
ment was  made  public  there  had  been  no  great 
change  in  the  totals  outstanding.  The  details 
of  its  first  report  follow:1 

RESOURCES 

Capital  unpaid P3,200,000 

Bonds  unissued 1,000,000 

Loans 1,811,503 

Cash 42,074 

Bills  receivable 708,600 

Current  accounts  receivable 133,726 


Total P6,895,903 

LIABILITIES 

Capital P5,000,000 

Bonds 1,770,900 

Current  accounts  payable 125,003 


Total P6,895,903 

The  Banco  de  Empleados,  with  concession 
bearing  date  of  June  12,  1883,  had  been  opened 
for  business  October  23d.  With  an  authorized 
capital  of  P500,000,  it  had  paid  in  but  P64,670; 
cash  in  vault  totaled  but  P819.  Its  situation 
must  needs  have  been  more  or  less  precarious, 
spite  of  the  fact  it  had  put  in  circulation  no 

1  Memoria  de  Hacienda,  1883-84,  p.  L. 

48 


ORIGIN  OF  THE  BANCO  NACIONAL 

notes,  although  authorized  to  do  so.    The  de- 
tails of  the  statement  are  here  given.1 

RESOURCES 

Capital  unpaid P435,330 

Cash 819 

Bills  receivable 102,537 

Current  accounts  receivable 21,200 

Total P559,886 

LIABILITIES 

Capital P500.000 

Current  accounts  payable 59,886 

Total P559,886 

By  comparison,  the  Banco  Nacional  looms 
powerful  in  the  extreme.  With  capital  paid 
of  P7,499,500,  cash  resources  of  P2,890,274, 
and  current  accounts  receivable  in  excess  of 
P9,000,000 — it  could  reasonably  feel  comfort- 
able facing  deposits  and  current  accounts  pay- 
able of  P6,788,195,  and  notes  in  circulation  of 
P4,341,377.  But  it  was  not  a  strong  position, 
and  probably  never  again  in  its  history  was 
the  bank  actually  caught  hi  so  weak  a  condi- 
tion. The  details  follow:2 

1  Memoria  de  Hacienda,  1883-84,  pp.  LI-LIL. 

2  Ibid.,  p.  LII.     The  statement  of  the  Banco  Nacional  here  set 
out  carries  an  error  of  P500,000.     We  have  no  way  of  determining 
whether  it  is  on  the  resource  or  liability  side.     The  table  is  given  as 
officially  published. 

49 


PRESENT  AND  PAST  BANKING   IN   MEXICO 

RESOURCES 

Capital  unpaid P12,500,000 

Cash 2,890,275 

Portfolio 4,718,732 

Secured  loans 1,020,023 

Current  accounts  receivable 9,393,424 

Furniture  and  fixtures . .  288,000 


Total P30,810,454 

LIABILITIES 

Capital P20,000,000 

Notes  in  circulation 4,341,377 

Current  accounts  payable 6,788,195 

Reserve 180,882 

Total P31,310,454 

Such,  then,  was  the  showing  made  by  banks 
publishing  statements  at  the  end  of  the  ad- 
ministration of  Gonzalez.  During  the  four 
years  of  his  incumbency,  the  assets  from  a  few 
hundred  thousands  had  mounted  to  almost 
P40,000,000.  In  short,  the  country  had  en- 
tered upon  a  new  era,  not  only  in  its  political, 
but  in  its  economic  life,  and  the  part  played  by 
banking  in  the  evolutionary  processes  was  most 
significant. 


DUBLAN  AND   THE  BANKS 

WHEN  Diaz  took  over  the  Presidency  of 
Mexico  from  Gonzalez  December  1, 1884, 
he  brought  with  him  into  the  Department  of 
Hacienda  a  man  of  ability — M.  Dublan.  His 
predecessor  had  been  De  la  Pena,  who  had 
labored  seriously  and  ably  for  the  betterment  of 
national  budgetary  matters,  and  for  the  im- 
provement of  banking  conditions.  Splendid 
results  had  been  achieved,  particularly  in  the 
latter  enterprise,  and  the  promulgation  of  the 
Code  of  Commerce  marked  a  great  advance 
on  the  way  to  sound  business  development. 
But  we  have  had  occasion  earlier  to  review  and 
appraise  the  substantial  results  flowing  from 
the  enlightened  administration  of  Gonzalez. 
The  roads  were  blazed  in  every  direction.  It 
merely  remained  to  follow  and  improve.  Du- 
blan proved  himself  adept  in  this;  but  his  was 
no  light  undertaking. 

The  needs  of  the  Treasury  were  clamorous, 
and  he  bent  himself  to  the  task  of  providing 

5  51 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

funds  for  operating  expenses.  One  of  his  first 
acts  was  to  reform  the  contract  of  the  Banco 
Nacional,  whereby  the  bank  released  certain  of 
its  assigned  taxes  in  favor  of  the  government; 
and  some  modification  was  made  in  the  agree- 
ment with  respect  to  the  handling  of  the  public 
debt.1  And  the  relations  of  the  government 
with  the  Banco  Nacional  were  destined  to 
grow  more  intimate  and  vastly  more  vital. 

We  have  heretofore  scanned  briefly  the  main 
clauses  of  the  Code  of  Commerce  dealing  with 
banks,  which  surely  marked  a  great  sweep 
in  advance,  so  far  as  legislation  was  concerned. 
But  was  it  possible  under  prevailing  conditions 
to  put  the  measure  into  operation?  Clearly,  it 
was  not.  The  law  became  effective  July  20, 
1884,  and  six  months  later,  according  to  its 
terms,  those  banks  operating  without  federal 
sanction,  and  which  had  not  conformed  to  the 
law  in  respect  of  fiduciary  circulation,  were  to 
be  penalized  by  fines  and  thrown  into  the 
hands  of  the  government  for  liquidation. 

In  the  belief  that  they  had  legal  warrant  for 
their  functioning,  or  through  inability  to  com- 
ply with  the  terms  of  the  code,  none  of  the 
banks  caught  in  the  net  of  the  law  had  at- 
tempted to  retire  its  outstanding  circulation. 
And  none  had  been  brought  to  conform  to  its 

>  Alemaria  de  Hacienda,  1884-85,  p.  101. 

52 


DUBLAN  AND  THE  BANKS 

mandates.  The  banks  involved  were  the  Banco 
de  Londres,  Mexico  y  Sud  America  and  three 
banks  in  Chihuahua. 

On  January  18,  1885,  just  twelve  days  before 
the  date  set  for  putting  the  law  to  the  test,  the 
Banco  de  Londres  petitioned  President  Diaz 
to  be  exempted  from  the  application  of  the 
provisions  of  the  code.  This  petition  was 
promptly  refused,  and  on  January  20th  the  gov- 
ernment intervened.  The  notes  of  the  bank 
were  to  be  retired  and  the  bank  itself  liquidated. 
But  the  bank  at  once  sued  out  an  injunction 
(amparo).  The  matter  was  carried  to  the 
Supreme  Court,  which  body,  on  June  17th, 
rendered  a  verdict  in  favor  of  the  bank,  basing 
its  decision  on  provisions  in  the  Constitution 
of  1857  and  subsequent  legislation. 

In  the  mean  time  the  Chihuahua  banks, 
through  Enrique  Creel,  had  presented  their 
case  and  had  secured  an  extension  of  ten 
months  in  which  to  retire  their  notes.1 

While  the  government  had  apparently  been 
defeated  in  its  chief  purpose  of  forcing  all  bank- 
ing institutions  under  federal  supervision,  the 
law  had  undoubtedly  been  of  great  service; 
for  in  many  cities  of  the  Republic  individuals 
and  firms  were  floating  notes  based  wholly  on 
credit.  Effective  steps  were  taken  to  suppress 

1  Memoria  de  Hacienda,  1884-85,  pp.  39-40. 

53 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

this  positive  menace  to  the  economic  stability 
of  the  country.  In  this  work  of  tracing  and 
denouncing  the  emitters  of  notes,  the  Banco 
Nacional  was  alert  and  rendered  a  real  service. 
But  the  energy  with  which  it  pressed  its  case 
against  the  Banco  de  Londres  may  have  been 
partly  inspired  by  business  rivalry.  There  de- 
veloped an  acrimonious  controversy  between 
these  two  banks,  the  dispute  turning  chiefly 
on  the  question  of  right  to  emit  notes.1  The 
Banco  Nacional  endeavored  to  bring  the  gov- 
ernment to  enforce  the  conditions  of  the  code  and 
the  terms  of  its  concession,  which  would  have 
meant  the  suspension  of  the  powers  of  the  Banco 
de  Londres  to  issue  notes.  In  effect,  it  doubtless 
would  have  meant  the  closing  of  the  bank. 

The  Banco  de  Londres  was  not  the  only  one 
attacked — other  banking  institutions  which  had 
quietly  crept  in  were  also  assailed.  They  were 
charged,  and  perhaps  justly,  with  evading  the 
conditions  imposed  by  the  Code  of  Commerce. 
On  the  other  hand,  it  must  be  said  that  these 
institutions  had  complied  with  the  law  of  the 
country  at  the  time  of  their  organization,  and 
ought,  therefore,  to  have  been  exempted  from 
the  application  of  ex  post  facto  laws.  In  the 
case  of  the  Banco  de  Londres,  the  Supreme 

1  See  La  Cuestidn  de  Bancos,  by  Indalecio  Sanches  Gavito  and  Pablo 
Macedo,  Mexico,  1895  pp.  123  et  seq. 

64 


DUBLAN  AND  THE  BANKS 

Court  held  that  the  position  of  the  bank  was  well 
taken.  The  case  of  the  Chihuahua  banks  was 
distinct;  they  were  operating  under  special 
state  concessions,  differing  among  themselves; 
and  all  were  in  violation  of  the  agreements  of 
the  federal  government  with  the  Banco  Na- 
cional.  Perhaps  it  was  to  be  expected  that  the 
Banco  Nacional  would  insist  on  the  govern- 
ment's interposing  in  the  premises,  but  Diaz 
was  too  astute  to  go  violently  about  so  delicate 
a  matter;  for  the  line  of  demarcation  between 
federal  and  state  authority  had  still  to  be  fixed. 
Besides,  the  vested  interests  of  bank  and  client 
might  not  be  ridden  over  rough-shod.  Diaz 
preferred  to  let  these  financial  problems  work 
their  own  solutions.  Time  would  cure  them. 

The  results  of  the  enactment  of  the  Code  of 
Commerce,  as  we  have  seen,  were  not  all  nega- 
tive. On  the  face  of  it,  there  had  followed 
failure — none  of  the  banks  directly  affected  by 
its  provisions  had  been  brought  wholly  under 
the  supervision  of  the  government.  Neverthe- 
less, the  quiet  pressure  of  the  law,  and  perhaps 
of  public  opinion,  was  destined  soon  to  bring 
definite  results.  The  attitude  of  the  Banco 
de  Londres  had  always  been  neutral  with  re- 
spect to  politics.  The  bank  had  held  aloof, 
but  that  times  had  changed  was  evident  when, 
on  June  23,  1885 — only  a  few  days  after  win- 

55 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

ning  its  injunction  suit  and  apparently  beating 
down  the  government's  effort  to  control  it — a 
contract  was  made  with  President  Diaz  to  sell 
the  amortized  nickel  coins  abroad  on  a  3-per-cent. 
commission.  At  the  same  moment,  it  agreed  to 
loan  the  government  P150,000  at  8  per  cent.1 
But  this  course  brought  no  final  respite.  The 
Banco  de  Londres — still  exposed  to  the  attack  of 
the  Banco  Nacional  and  public  criticism — made 
its  plans  to  take  on  a  different  character. 

The  Banco  de  Empleados,  chartered  in  1883, 
with  power  to  emit  bills,  had  made  small  prog- 
ress; and  on  May  11,  1886,  it  had  changed  its 
title  to  Banco  Comercial,  at  the  same  time 
amending  its  charter  to  provide  for  the  estab- 
lishment of  warehouses  and  the  making  of  loans 
upon  wares.2  But  this  bank  clearly  was  doomed 
after  the  statement  published  June  30,  1886, 
which  showed  a  capital  of  only  P72,600,  with 
cash  in  vault  of  only  P44.16.3  It  is  not  sur- 
prising, therefore,  that  on  August  21st  the  gov- 
ernment was  informed  by  Iturbe,  the  head  of 
the  bank,  that  his  concession  had  been  sold 
to  the  Banco  de  Londres.  Six  days  later  the 
government  approved  the  transfer  on  the  con- 
dition that  the  Banco  de  Londres  should  hence- 
forth consider  itself  bound  by  Mexican  laws 


1  Memoria  de  Hacienda,  1884-85,  p.  41. 
Ubid.,  1885-86,  pp.  XXIX-XXX. 

56 


'  Ibid.,  p.  357. 
56 


DUBLAN  AND  THE  BANKS 

and  the  Code  of  Commerce.  The  attitude  of 
Diaz  was  clearly  indicated  when  he  permitted 
the  bank  at  once  to  violate  the  law  which  pre- 
scribed that  only  two  pesos  of  bills  might  be 
issued  for  each  peso  held  in  cash.  In  making 
the  transfer  under  the  concession  of  the  Banco 
Comercial,  the  bank  at  once  was  permitted  an 
outstanding  excess  of  notes  in  a  total  of  P893,- 
727.  *  And  the  bank  was  allowed,  furthermore, 
to  exchange  a  new  series  for  the  old  notes  in 
circulation;  and  eight  months  were  stipulated 
for  the  conclusion  of  the  operation. 

The  first  statement  rendered  by  the  Banco  de 
Londres  under  its  new  relations  with  the  govern- 
ment— and  the  first  one  published  in  Mexico — 
was  of  October  31, 1886,  and  is  as  follows: 2 

RESOURCES 

Portfolio P1,Q51,068 

Current  accounts  receivable 1,407,951 

Property 55,900 

Cash 1,318,517 

Total P3,833,436 

LIABILITIES 

Building  for  capital PI, 000,000 

Current  accounts  payable,  and  deposits.     1,348,412 
Notes  in  circulation 1,485,024 

Total P3,833,436 

1  Memoria  de  Hacienda,  1886-87,  p.  LII.  2  Ibid.,  p.  LIU. 

57 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

By  June  30, 1887,  the  circulation  of  the  Banco 
de  Londres  had  increased  P31,000,  but  the  cash 
on  hand  had  been  augmented  by  approxi- 
mately P600>000;  and  deposits  had  increased 
by  almost  P500,000.  By  way  of  contrast,  the 
following  statement  of  the  Banco  Nacional,  as 
of  July  31,  1886,  may  prove  enlightening,  dis- 
closing, as  it  does,  its  marked  pre-eminence: l 

RESOURCES 

Capital  unpaid P12,000,000 

Cash 7,642,761 

Portfolio 4,554,312 

Secured  loans 1,034,566 

Current  accounts  receivable 12,285,327 

Furniture  and  fixtures 295,001 

Total P37,811,967 

LIABILITIES 

Capital P20,000,000 

Notes  in  circulation 8,191,297 

Current  accounts  payable 8,988,891 

Reserve 631,779 

Total P37,811,967 

By  July  20,  1888,  the  Banco  (National2  had 
established  nine  branches  and  twenty  agencies 
in  the  leading  cities  of  the  Republic.  Through 
these  ramifications,  it  was  able  better  to  carry 

T  1Memoria  de  Hacienda,  1886-87,  p.  LV.     2  Ibid.,  1888-89,  pp.  10-11. 

58 


DUBLAN  AND  THE  BANKS 

into  effect  its  contract  with  the  government  of 
June  15th,  in  which  it  undertook  to  retire  the 
old  coins :  toston,  peseta,  real,  half -real,  cuar- 
tilla,  and  tlaco.  Under  Acts  of  May  10, 1886,  and 
October  18,  1887,  the  decimal  system  in  mone- 
tary matters  had  been  definitely  adopted,  and 
the  old  coins,  which  had  come  down  from  the 
Spanish  regime,  were  to  be  supplanted.  The 
costs  were,  of  course,  to  be  borne  by  the  state; 
and  further,  the  government  agreed  to  bear  the 
loss  resulting  from  the  acceptance  of  light- 
weight pesos.1  It  was  no  small  undertaking, 
but  the  Banco  Nacional  pressed  forward  with 
it  and  eventually  the  task  was  done. 

The  experience  of  the  government  with  the 
banking  institutions  of  the  country  was  so  em- 
inently satisfactory  that  Congress,  in  the  spring 
of  1888,  passed  a  plenary  act  authorizing  Presi- 
dent Diaz  for  two  years  to  grant  concessions 
for  the  organization  of  credit  institutions  wher- 
ever it  was  deemed  expedient.  The  time  limit 
ran  from  June  1,  1888,  to  June  1,  1890.2  Such 
a  grant  of  authority  was  almost  without  prece- 
dent, and  it  is  evidence  of  the  hold  Diaz  had 
upon  Congress.  It  may  freely  be  said  that 
these  two  years  were  among  the  most  active 
in  the  history  of  banking  in  that  country. 
However,  if  criticism  is  made  of  the  great  lack 

1  Memvria  de  Hacienda,  1887-88,  pp.  188-190.       2  Ibid.,  pp.  151-152. 

59 


of  uniformity  observed  in  the  terms  of  conces- 
sions, some  blame  must  attach  to  those  re- 
sponsible for  the  feverish  movement  extending 
over  the  next  two  years. 

About  the  time  the  Banco  de  Londres  was 
being  transformed  under  the  concession  of  the 
Banco  Comercial,  which  it  had  purchased,  the 
Chihuahua  banks  were  also  bestirring  them- 
selves because  of  the  interference  of  the  Code 
of  Commerce.  In  May,  1886,  Carlos  Pacheco 
appeared  before  Dublan,  Minister  of  Hacienda, 
to  work  out  a  modus  vivendi  for  these  institu- 
tions.1 And  one  was  arranged,  but  each  was 
a  temporizing  measure  only.  The  final  step 
of  conforming  to  the  federal  law  was  taken  by 
the  Banco  Santa  Eulalia — which  had  opened 
its  doors  July  31,  1875 — when,  on  March  15, 
1888,  a  concession  for  fifteen  years  was  granted 
by  President  Diaz.  Under  the  terms  of  this 
concession,  the  name  of  the  institution  was 
changed  to  Banco  Comercial  de  Chihuahua. 
The  reformed  charter  called  for  a  minimum 
capital  of  P500,000.  The  bank  was  given  the 
right  to  issue  notes  three  times  its  volume  of 
precious  metals.  But  at  no  time  could  the 
outstanding  issue  of  notes  exceed  the  capital 
stock.  It  is  interesting  to  find  that  the  bank 
was  empowered  to  issue  notes  for  denomina- 

1  Memoria  de  Hacienda,  1885-86,  p.  XXX. 

60 


DUBLAN  AND  THE  BANKS 

tions,  as  low  as  25  centavos,  a  fact  evidencing 
the  great  scarcity  of  small  coins  in  the  country. 
Furthermore,  the  bank  agreed  to  retire  all  its 
old  notes  by  June  30,  1889,  and,  where  they 
were  payable  in  silver,  the  bank  was  to  retire 
them  at  8-per-cent.  discount.  The  bank  was 
to  have  the  right  to  substitute  new  bills 
for  old,  when  they  had  been  properly  certified 
by  the  intervenor  of  the  government.  It 
was  also  made  a  part  of  the  contract  with  the 
bank  that  it  should  set  aside  5  per  cent,  of  its 
earnings  to  a  reserve  fund.  The  institution  was 
exempt  from  all  taxation,  save  a  special  stamp 
tax.1 

While  the  reform  of  the  Santa  Eulalia  was 
going  on,  under  date  of  June  1,  1888,  con- 
cessions were  approved  for  the  reformation  of 
the  Banco  Mexicano  and  the  Banco  Minero, 
also  of  Chihuahua.2 

The  Banco  de  Chihuahua,  with  charter  dated 
December  19,  1883,  from  the  state  of  Chihua- 
hua, was  granted  on  December  15,  1888,  a 
concession  from  the  federal  government  similar 
in  all  respects  to  that  for  Santa  Eulalia.3 

With  the  conversions  of  the  Chihuahua 
group  of  banks,  and  with  the  earlier  transfer 
of  the  Banco  de  Londres,  the  banks  in  the  Re- 

1  Memoria  de  Hacienda,  1888-89,  pp.  61-63. 

2  Ibid.,  1887-88,  p.  152.  3  Ibid.,  1888-89,  pp.  45-47. 

61 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

public  had  at  length  been  brought  under  the 
rule  of  the  Code  of  Commerce,  or  of  the  federal 
government.  Thus,  in  the  space  of  five  years, 
the  uniformity  which  Gonzalez  and  De  la 
Pena  had  sought  was  a  thing  attained;  and  the 
ground  was  prepared  for  the  great  advance  of 
1889-90.  In  a  statement  of  Dublan's,1  in  his 
Memoria  for  1888-89,  he  referred  to  the  fact 
that  the  Executive  had  been  authorized  by 
law  of  June  1,  1888,  to  undertake  certain  re- 
forms in  the  realm  of  banking.  He  referred 
to  the  concession  of  the  Banco  Hipotecario 
Mexicano.  He  also  developed  further  the  idea 
that  it  was  desirable  to  establish  other  banks 
to  aid  in  the  development  of  industry  and 
trade.  The  concession  of  the  Banco  Hipote- 
cario Mexicano  was  reformed  in  several  vital 
respects,  and  concessions  were  granted  for  the 
establishment  of  agricultural  banks  in  Puebla 
and  Yucatan.  In  his  report,  Dublan  also  re- 
ferred to  the  authority  under  which  he  had 
reformed  the  Chihuahua  banks.  He  mentioned 
the  fact  that  the  Banco  Nacional  had  adhered 
strictly  to  its  arrangement  with  the  govern- 
ment in  the  matter  of  looking  after  the  service 
on  the  public  debt,  and  to  the  withdrawing  from 
the  markets  of  the  old  coins;  and  that  it  had 
carried  on  punctually  its  current-account  ar- 

1  Memoria  de  Hacienda,  1888-89,  p.  XXXVII. 

62 


DUBLAN  AND  THE  BANKS 

rangement  with  the  Treasury.  It  was  at  this 
time,  too,  that  the  Banco  de  Londres  modified 
its  charter,  a  matter  we  shall  discuss  a  little 
later. 

The  charters  granted  the  two  agricultural 
banks,  above  referred  to,  bear  dates  of  April 
10,  1888  (Banco  Agricola  e  Industrial  de  Pue- 
bla),  and  May  24,  1888  (Banco  Agricola  e  In- 
dustrial Yucateco).  The  concessions  for  these 
institutions  were  practically  similar  in  all  re- 
spects and  served  as  models  for  a  number  that 
followed.  These  banks  were  empowered  to 
make  loans  to  farmers  and  manufacturers. 
They  were  allowed  to  sell  agricultural  and  manu- 
factured products  on  commission.  They  were 
permitted  to  buy  in  foreign  countries  on  com- 
mission, machinery,  seeds,  and  other  things 
necessary  in  the  development  of  agriculture 
and  industry.  It  is  worthy  of  mention  that  the 
authorities  realized  the  great  need  for  financial 
support  in  these  two  great  departments  of 
human  activity.  But,  strange  as  it  may  ap- 
pear, while  a  number  of  banks  were  chartered 
to  meet  this  express  design  of  the  Diaz  admin- 
istration, not  one  of  the  type  can  be  said  to 
have  been  successful.  We  shall  have  reason 
to  take  up  this  topic  in  another  chapter. 


VI 

HIGH  TIDE  OF  BANK  CONCESSIONS 

THE  activity  of  Dublan  was  extraordinary, 
and  his  success  in  budget  as  well  as  bank- 
ing matters  was  remarkable,  when  contrasted 
with  the  chaotic  periods  which  had  preceded. 
His  efforts  to  bring  all  banking  institutions 
of  the  country  within  reach  of  the  federal  au- 
thorities had  borne  excellent  fruit.  What  De 
la  Pena  and  Gonzalez  had  conceived  was  car- 
ried into  effect  by  Dublan.  His  zeal,  however, 
might  have  brought  on  trouble  but  for  the 
steadying  arm  of  the  courts.  So  eager  was  he 
that  all  banking  institutions  should  adhere 
strictly  to  the  Code  of  Commerce  that  his 
attack  on  the  Banco  de  Londres  and  the  Chi- 
huahua institutions,  might  ^easily  have  thrown 
them  into  liquidation  with  evil  consequences. 
Four  years  had  been  required  to  clear  the 
ground  for  the  great  wave  of  banking  conces- 
sions which  was  to  follow  through  the  years 
1889-90.  When  Congress  had  empowered 
President  Diaz  to  create  as  many  banks  as 

64 


HIGH  TIDE  OF  BANK  CONCESSIONS 

he  deemed  expedient,  during  the  period  of  two 
years,  there  was  inaugurated  in  Mexico  an 
intense  campaign  for  the  securing  of  bank  con- 
cessions. The  movement  received  its  impetus 
through  the  tremendous  profits  which  banks  had 
made.  Of  course,  politics  played  its  part,  but 
favoritism  was  scarcely  carried  to  undue  lengths. 

According  to  the  Memoria  de  Hacienda  for 
1888-89,  four  banks  filed  statements  as  of 
June  30,  1889,1  showing  assets  of  almost  P63,- 
000,000.  The  banks  reporting  were  the  Banco 
Mexicano,  Banco  Minero,  Banco  de  Londres, 
and  the  Banco  Nacional.  A  consolidated  state- 
ment may  be  of  interest.  (See  page  66.) 

The  details  of  these  statements  carry  com- 
paratively few  items  of  interest.  It  is  to  be 
noted  that  the  capital  of  the  Banco  de  Londres 
is  still  figured  at  Pi, 000,000,  and  that  sum  was 
the  estimated  value  of  its  building.  The  two 
Chihuahua  banks  reporting  indicated  clearly 
that  they  were  endeavoring  to  retire  their  old 
currency  issues  and  that  they  were  making  sub- 
stantial progress.  The  total  of  notes  in  circu- 
lation had  now  risen  to  P20,500,000,  which 
pointed  as  an  infallible  index  to  the  great  in- 
crease in  efficiency  of  banking  arrangements, 
and  to  substantial  economic  progress  through- 
out the  country. 

1  Memoria  de  Hacienda,  1888-89,  pp.  XXXVIII-XXXIX. 

65 


PRESENT  AND   PAST  BANKING   IN  MEXICO 


111 

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66 


The  following  year,  in  addition  to  the  four 
banks  above  noted,  three  more  filed  statements. 
They  were  the  Banco  Yucateco,  Banco  Mer- 
cantil  de  Yucatan,  and  a  branch  of  the  Banco 
Nacional  for  a  tune  enjoying  the  distinction 
of  being  called  the  Banco  Nacional  de  El  Paso, 
located  in  the  city  of  Juarez.  The  combined 
assets  of  these  three  statements  approximated 
P2,097,119.1 

Dublan,  who  stood  for  the  widest  possible 
development  of  banking,  found  himself  some- 
what handicapped  by  the  restrictions  of  the 
Code  of  Commerce.  Hence,  in  1889,  he  se- 
cured the  adoption  of  certain  amendments  to 
the  Code  which  practically  left  him  free  to 
move  untrammeled  in  the  pursuit  of  his  pur- 
poses. He  had  been  subjected  to  criticism  for 
what  is  considered  the  unnecessary  haste  with 
which  he  went  about  the  prosecution  of 
his  program.  Charters  for  banks  multiplied 
rapidly,  and  in  spite  of  continued  protests 
of  the  Banco  Nacional,  clauses  were  incor- 
porated which  conflicted  both  with  the  code 
and  with  the  concession  of  the  Banco  Nacional. 
And  these  new  concessions  were  duly  authorized 
by  the  Mexican  Congress.  And  besides,  the 
Banco  Hipotecario,  a  mortgage  bank,  which 
had  been  organized  in  1883,  had  its  constitu- 

\Memoria  de  Hacienda,  1889-90,  pp.  XXXII-XLI. 
6  & 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

tion  amended  so  as  to  enable  it  to  issue  certifi- 
cates of  deposit,  payable  to  bearer  at  sight, 
either  in  gold  or  silver,  in  Mexico,  or  in  foreign 
countries.  These  certificates  were,  of  course, 
bank-notes  in  character  and  function.  Further- 
more, the  Minister  transferred  to  an  individual 
the  banking  powers  which  formerly  had  been 
granted  to  the  Monte  de  Piedad,  authorizing 
the  founding  of  a  bank  in  the  capital  which 
should  be  called  the  Banco  de  Fomento,  with 
powers  of  issue.  Luckily,  this  bank  was  not 
established,  nor,  indeed,  did  the  Banco  Hipote- 
cario  undertake  to  exercise  the  right  to  issue 
certificates. 

In  his  Memoria  for  the  fiscal  year  1889-90, 
Dublan  reported  at  length  on  his  stewardship. 
During  the  year  ending  June  30,  1890,  five 
concessions  for  the  establishment  of  agricult- 
ural, industrial,  and  mining  banks  were  sanc- 
tioned. They  were  to  be  located  in  San  Luis 
Potosi,  Zacatecas,  Orizaba,  Guanajuato,  and 
Monterey.  This  type  of  bank  was  called 
Banco  Agricola,  Industrial  y  Minero. 

During  the  same  year  five  concessions  were 
authorized  for  the  organization  of  banks  of 
emission.  Two  were  to  be  located  at  Merida, 
Yucatan;  the  others  were  planned  for  San 
Luis  Potosi,  Saltillo,  and  Hermosilla. 

One  concession  was  granted  for  the  estab- 

68 


HIGH  TIDE  OF  BANK  CONCESSIONS 

lishment  of  an  agricultural  and  industrial  bank 
in  Guadalajara,  in  the  state  of  Jalisco.  It  will 
be  noted  that  this  bank  varied  in  type  from  the 
group  of  five  enumerated  above,  in  that  it  did 
not  include  mining  within  the  scope  of  its 
operations. 

With  respect  to  concessions  for  the  agricult- 
ural, industrial,  and  mining  banks,  it  may  be 
of  interest  to  discuss  them  briefly  on  account 
of  the  importance  which  this  type  of  bank  as- 
sumed in  the  general  law  which  was  to  be  en- 
acted under  Limantour.  A  comparison  of  the 
charters  issued  for  these  several  institutions 
shows  no  difference  of  importance.  As  be- 
tween the  charters  of  the  San  Luis  Potosi  and 
Zacatecas  banks,  there  is  only  one  clause  in 
which  variation  is  noted — to  wit,  that  having 
to  do  with  the  deposit  of  P30,000  with  the 
Hacienda.  This  sum  was  left  by  each  as  a 
pledge  to  secure  the  fulfilment  of  the  conces- 
sions. In  the  case  of  the  San  Luis  Potosi 
Bank  it  was  to  be  forfeited  at  the  end  of  four 
months,  provided  the  conditions  had  not  been 
complied  with.  The  bank  of  Zacatecas  es- 
caped such  summary  proviso.1 

The  important  requirements  in  these  con- 
cessions may  be  set  out  more  or  less  briefly. 
First  of  all,  there  was  a  minimum  capital 

1  Memoria  de  Hacienda.  1889-90,  pp.  340-49. 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

stipulation  of  P500,000,  and  banks  were  au- 
thorized to  begin  operations  when  50  per  cent, 
had  been  paid  in.  The  balance  was  to  be  paid 
within  a  year.  Banks  were  authorized  to  es- 
tablish branches  and  agencies  within  limited 
regions,  ranging  from  two  to  three  of  the  Mexi- 
can states.  These  banks  were  obliged  to  create 
a  5-per-cent.  reserve  annually  until  20  per  cent, 
of  the  capital  had  been  attained.  Besides  these 
general  requirements,  there  may  be  enumerated 
the  following.1 

1.  Banks  were  expressly  committed  to  the 
proposition  of  procuring  capital  for,  and 
of  making  loans  to,  farmers,  manufact- 
urers, and  miners,  with  time  limit  not 
to  exceed  one  year. 

2.  They  were  to  make  loans  on  lands  and 
contracts,  subject  to  mortgage,  with  in- 
terest at  6  per  cent.,  for  ten  years. 

3.  They  could  make  amortizable  loans  pro- 
viding for  annual  payments,  including 
interest,  on   a  basis  of  twenty  years. 
No  annual  payment  was  to  exceed  10 
per  cent,  of  the  sum  loaned.    Borrowers 
had  the  right  to  pay  the  bank  in  cash 
or  bonds  of  the  bank  at  par. 


Memoria  de  Hacienda,  1889-90,  pp.  341-44. 
70 


HIGH  TIDE  OF  BANK  CONCESSIONS 

4.  Banks  were  authorized  to  make  loans  on 
agricultural  products,  manufactured  ar- 
ticles, and  animals  left  on  commission; 
but  such  loans  were  not  to  exceed  in  time 
one  year. 

5.  These  banks  were  permitted  to    open 
accounts    current  with  farmers,  miners, 
and  manufacturers,  secured  by  mortgage 
or  collaterals. 

6.  They  were  authorized  to  receive  deposits 
and  to  make  proper  distribution  of  funds. 

7.  They  might  undertake  the  sale  of  prod- 
ucts, or  export  the  same. 

8.  They  were  authorized  to  purchase  on 
commission  domestic  or  foreign  machin- 
ery, seeds,  and  raw  products  needed  by 
farmers,  miners,  and  manufacturers. 

9.  They  might  undertake  on  commission  the 
collection  of  accounts. 

10.  They  were  permitted  to  buy  for  them- 
selves, or  for  others,  shares  of  other  bank- 
ing institutions. 

11.  They  might  contract  for  the  work  of 
clearing  or  the  improving  of  lands,  the 
exploitation  of  mines,  and  to  augment 
the  agricultural,  mining,  and  manufact- 

71 


uring  output  on  a  basis  to  be  estab- 
lished by  the  boards  of  directors. 

12.  They  might  administer  properties  which 
came  into  their  hands  through  foreclos- 
ure until  the  same  were  disposed  of. 

13.  They  were  empowered  to  emit  cash  bonds 
for  terms  varying  from  three  months  to 
three  years,  bonds   to   be   payable  to 
bearer. 

14.  The  law  provided  for  government  in- 
tervenors,  for  monthly   statements  and 
extraordinary  examinations.  These  banks 
were   exempt  from   taxation,  except   a 
form  of  stamp   tax.     They  were   also 
exempt  from  tax  on  precious  metals  ex- 
ported to  pay  interest  on  shares.    They 
were  exempt  from  government  confisca- 
tions in  case  of  war,  and  were  forbid- 
den to  sell  concessions  to  foreign  govern- 
ments.   They  were  to  acknowledge  their 
Mexican   character  under   all   circum- 
stances. 

No  better  evidence  can  be  found  of  the  al- 
truistic disposition  of  the  Diaz  regime  than  in 
the  articles  of  the  banking  concessions  of  the 
type  above  described.  It  required  men  of  im- 
agination to  devise  so  excellent  and  yet  such 
hopeless  charters.  To  have  thought  that  this 

72 


HIGH  TIDE  OF  BANK  CONCESSIONS 

type  of  institution  was  fitted  to  advance  the 
agricultural,  industrial,  and  mining  conditions 
then  prevailing  in  Mexico  was  one  thing;  but 
it  required  flights  of  imagination  indeed  to 
picture  its  materialization.  Mexico  was  a  raw 
country  in  the  extreme,  sparsely  settled,  and 
with  a  comparatively  impoverished  population. 
Moreover,  the  people  were  unacquainted  with 
banking  institutions.  Recognition  of  the  need 
of  such  a  type  of  institution  was  one  thing, 
but  quite  another  to  bring  such  institution 
into  being.  Perhaps  even  more  difficult  would 
have  been  the  problem  of  sustaining  it,  granted 
the  possibility  of  its  having  begun  operations. 
One  thing  they  saw  clearly — that  foreign  capital 
was  indispensable.  This  is  shown  in  the  pro- 
vision for  paying  dividends  on  foreign-held 
shares. 

It  is  to  Limantour's  credit  in  the  matter  of 
purpose  rather  than  judgment  that  when  he 
came  to  design  one  of  the  three  types  of  banks 
for  his  general  law,  he  took  the  charter  above 
discussed  and  made  it  the  basis  for  his  Banco 
Refaccionario.  A  little  later  we  shall  have  oc- 
casion briefly  to  remark  the  points  of  difference 
between  the  two. 

By  the  year  1890  there  had  developed  con- 
siderable interest  in  the  question  of  establishing 
a  system  of  banks  for  the  Republic.  The 

73 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Minister  of  Hacienda  had  been  engaged  in 
the  study  of  a  number  of  plans.  That  which 
Dublan  finally  decided  upon  was  similar  in 
some  respects  to  the  national  banking  sys- 
tem of  the  United  States,  and  was  clearly  pat- 
terned after  it.  He  mentioned  that  his  scheme 
contemplated  the  issue  of  notes,  secured  by  a 
deposit  of  government  bonds,  the  basis  of  issue 
to  be  P4  of  notes  to  Pi  of  bonds.  It  is  perhaps 
fortunate  that  this  immature  scheme  of  Du- 
blan's  failed  of  materialization. 

It  is  impossible  to  separate  banks  from  the 
general  economic  machinery  of  the  state  at 
large.  The  feverish  activity  which  we  have 
witnessed  was  short-lived.  The  economic  press- 
ures which  had  been  put  upon  the  government 
had  in  no  real  sense  relaxed.  It  must  be  re- 
called that  even  Diaz  thus  far  had  failed  in 
his  efforts  to  readjust  the  public  debt,  both  in- 
terior and  exterior,  and  that  the  condition  of 
the  Mexican  Treasury  was  desperate  enough. 
Nor  may  we  lose  sight  of  the  fact  that  the  low 
price  of  silver,  together  with  the  disorganiza- 
tions agricultural  and  mining,  had  been  slow 
to  yield  to  the  new  course  of  things.  On  ac- 
count of  world-wide  depression,  Mexico  could 
not,  at  the  time,  hope  for  outside  assistance. 
Besides,  Mexican  credit  had  been,  and  was 

still,  at  a  low  ebb,  and  while  the  organization 

74 


HIGH  TIDE  OF  BANK  CONCESSIONS 

of  the  Banco  Nacional — with  its  assumption 
of  guardianship  of  the  public  debt — tended  to 
better  the  outlook,  the  time  was  not  yet  come 
for  money-lenders  to  contend  in  the  markets 
for  Mexican  paper. 

So  serious  was  the  situation  of  the  Hacienda 
that  President  Diaz,  in  his  turning  about,  sum- 
moned to  his  assistance  Matias  Romero,  the 
great  historian  of  Mexican  public  finances. 
And  Romero  brought  with  him  into  the  office 
of  the  Treasury  a  man  whose  wisdom  was  soon 
to  extricate  the  administration  of  Diaz  from 
its  embarrassed  position.  This  was  Jose  Yves 
Limantour.  The  combined  efforts  of  these  two 
men,  Romero  and  Limantour,  were  brought  to 
bear  on  the  financial  problems;  for  the  Treasury 
was  utterly  depleted.  The  Banco  Nacional, 
during  the  fiscal  year  1891-92,  had  advanced 
the  government  more  than  double  the  amount 
agreed  upon;1  and  yet,  so  serious  was  the  state 
of  the  Hacienda,  that  the  President  was 
brought  to  consider  the  proposition  of  issuing 
Treasury  notes  under  the  recommendation  of 
Romero.2  Perhaps,  fortunately,  these  notes 
were  not  put  in  circulation. 

During  the  following  year,  1892-93,  the  im- 
portance of  the  role  of  the  Banco  Nacional  in 
the  fiscal  operations  was  most  apparent.  It 

1  bfemoria  de  Hacienda,  1891-952,  pp.  10-11.  2  Ibid.,  pp.  24-25, 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

acted  as  agent  for  the  government  in  the  flo- 
tation of  the  first  foreign  loan  under  the  Diaz 
administration.  It  also  made  advances  to  the 
government  totaling,  June  30,1893,  P5,962,639; 
the  rate  of  interest  was  10 J^  per  cent.1  Spite  of 
the  high  earnings,  the  situation  for  the  bank 
was  uncomfortable,  as  is  clearly  shown  in  its 
cash  account.  From  July  31,  1891,  to  June 
30,  1893,  its  cash  in  vault  disclosed  a  loss  of 
P4,041,974.2  This  could  not  go  on  indefinitely, 
and  yet  the  government  must  be  succored. 

To  illustrate  the  conditions  of  the  banks 
in  the  Republic  at  this  date — which  is  im- 
portant in  that  now  the  Hacienda  had  come 
to  be  dominated  by  Limantour  as  Minister 
Matias  Romero  having  been  returned  as  am- 
bassador to  Washington — a  condensed  state- 
ment of  all  the  banks  reporting  as  of  June  30, 
1892,  follows:3 

RESOURCES 

Capital  unpaid P14,400,000 

Cash 19,926,967 

Furniture,  etc 544,162 

Mortgage  loans 2,541,518 

Portfolio 28,636,262 

Secured  loans 2,354,793 

Current  accounts  receivable 26,007,656 

Total P94,411,358 

lMemvria  de  Hacienda,  1892-93,  p.  XXXIII.         2  Ibid.,  pp.  422-423 . 
d.,  1891-92,  p.  300. 

76 


HIGH  TIDE  OF  BANK  CONCESSIONS 

LIABILITIES 

Capital P32,780,000 

Notes  in  circulation 24,387,697 

Bonds 1,497,300 

Current  accounts  payable 31,691,849 

Reserve 4,054,512 

Total P94,411,358 

The  total  resources  of  the  banks  of  Mexico 
in  the  above  statement  approximate  P94,462,- 
097,  which  shows  a  considerable  growth  over 
the  grand  summary  for  the  year  1889.  Notes 
in  circulation  over  the  three  years  had  in- 
creased by  P4,000,000;  the  cash  assets  by 
P5,000,000.  Of  the  cash  resources  of  banks, 
the  Banco  Nacional  and  the  Banco  de  Londres 
carried  P18,000,000  of  the  approximately  P20,- 
000,000  of  gold  and  silver  in  vault 

The  banks  now  actually  in  operation  num- 
bered twelve,  provided  a  distinct  character  is 
given  to  the  branch  of  the  Banco  Nacional  lo- 
cated in  Ciudad  Juarez.  They  were  as  follows: 

Banco  Nacional       ) 

Banco  de  Londres   r  located  in  the  City  of  Mexico. 

Banco  Hipotecario  ) 

Banco  Minero 

Banco  Mexicano  de  Chihuahua    , 

^,  .,      ,  located  in  the  state 

Banco  Cmhuahuense  .  ^v-i      i 

n          .  |  of  Chihuahua. 

.Banco  C/omercial 

Branch  of  the  Banco  Nacional 

77 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Banco  Yucateco 


Banco  Mercantil  de  Yucatan 
Banco  de  Durango. 
Banco  de  Zacatecas. 


£  situated  in  Yucatan. 


By  the  following  year,  due  to  the  panic  which 
gripped  practically  the  whole  world,  cash  in 
banks  had  fallen  to  P17,939,847.  Notes  in 
circulation  had  increased  by  almost  Pi, 000,000; 
bonds  in  circulation  by  approximately  P500,. 
000.  Deposits  and  current  accounts  payable 
stood  at  P400,000  less  than  in  the  preceding 
year.  On  the  whole,  however,  there  had  been 
a  gain  of  nearly  P3,000,000  in  assets,  a  gain 
represented  largely  by  an  increase  in  the  credit 
lines  of  the  banks.1 

Limantour,  once  he  became  Minister  of 
Hacienda,  in  May,  1892,  gave  his  first  attention 
to  the  problem  of  bringing  the  budgetary  esti- 
mates into  balance,  to  arranging  the  public 
debt,  and  to  matters  of  taxation.  Another 
salutary  thing  he  did  was  to  put  an  end  to  the 
granting  of  concessions  for  the  establishment 
of  banks  until  such  tune  as  a  general  law  for 
credit  institutions  could  be  enacted.  The  Min- 
ister of  Hacienda  was  not  slow  to  appreciate 
the  predicament  of  a  number  of  the  banks. 
They  had  indeed  been  hard  put  to  it  in  order 
to  make  ends  meet  during  the  panicky  days  of 

1  Memoria  de  Hacienda,  1892-93,  pp.  L-LI. 

78 


HIGH  TIDE  OF  BANK  CONCESSIONS 

1892  and  1893.  With  singular  detachment,  in 
his  Memorias  de  Hacienda  covering  the  years 
1892-93,  1893-94,  1894-95,  he  dismisses  the 
subject  of  banks  with  the  briefest  paragraphs. 
His  only  forward-looking  move  was  taken  in 
the  establishment  of  the  Caja  de  Ahorros  de  los 
Empleados  de  Hacienda.  The  date  of  this  con- 
cession is  December  26,  1894,  and  it  is  chiefly 
to  be  distinguished  on  account  of  the  high 
cause  which  Limantour  expected  to  serve.  It 
was  organized  for  the  employees  of  the  Ha- 
cienda. It  was  a  co-operative  society  with 
shares  valued  at  P25  each;  and  it  was  per- 
mitted to  begin  business  with  130  shares  sub- 
scribed, but  only  partly  paid.1 

When  Limantour  went  into  office  he  found 
the  employees  not  only  of  the  Hacienda,  but 
of  the  other  departments  of  the  government, 
heavily  in  debt  and  many  of  them  victims  of 
loan  sharks.  Hence,  the  incentive  to  organize 
his  bank  of  savings.  The  employees  were  not, 
on  the  whole,  to  blame  for  the  state  of  things, 
because  the  government  had,  from  tune  to 
time,  through  failure  of  revenues,  been  forced 
either  to  cut  their  pay  or  to  miss  paying  al- 
together. It  will  be  recalled  that  the  govern- 
ment owed  at  this  time  rather  heavy  accounts 
to  its  officials.2 

1  Mcmoria  de  Hacienda,  1894-95,  p.  XXX.  2  Ibid.,  p.  381-383. 

79 


PRESENT  AND  PAST   BANKING   IN  MEXICO 

The  Minister  of  Hacienda  devotes  twenty 
pages  of  his  Memoria  of  1894-95  to  discussing 
the  details  of  his  Caja  de  Ahorros  de  los  Em- 
pleados  de  Hacienda.  It  was  chartered  for 
thirty  years  and  was  empowered  to  receive 
deposits  and  to  allow  interest  thereon.  It 
could  loan  to  shareholders  on  assignment  of 
one-quarter  of  their  salaries,  or  could  make 
loans  on  securities,  or  on  the  indorsement  of 
two  persons  who  were  either  shareholders  or 
depositors.  Deposits  were  to  be  received  from 
Pi  to  P500,  and  notice  of  withdrawal  was  re- 
quired. Only  shareholders  might  borrow,  and 
the  rate  of  interest  could  not  exceed  5  per 
cent.  A  reserve  was  to  be  accumulated  to 
aid  the  old  and  incapacitated  shareholders; 
and  the  bank  was  forbidden  to  own  real 
estate,  or  even  to  deal  in  it  at  all.  No  taxes 
were  levied,  save  a  modified  stamp  tax.  The 
capital  of  the  institution  was  to  be  supple- 
mented through  fines  laid  on  employees  in 
the  Hacienda,  and  in  addition,  2  per  cent, 
of  the  fines  imposed  for  infraction  of  the  cus- 
toms laws,  and  2  per  cent,  of  the  fines  for  vio- 
lations of  the  stamp-tax  rules  were  contributed 
by  the  government. 

By  June  30, 1895,  the  Caja  de  Ahorros  de  los 
Empleados  had  a  capital  of  Pll,825;  by  De- 
cember 31, 1896,  this  total  had  reached  Pl4,179, 

80 


HIGH  TIDE  OF  BANK  CONCESSIONS 

with  subscriptions  totaling  P20,709.    Loans  to 
shareholders  amounted  to  P41J824.1 

Later,  we  shall  have  reason  to  take  up  a 
little  further  the  history  of  the  Caja  de  Ahorros 
de  los  Empleados.  It  came  to  be  an  institution 
meeting  a  real  need.  It  was  an  effort  toward 
solving  the  problem  of  personal  credits.  The 
idea  was  undoubtedly  suggested  to  Limantour 
by  the  systems  in  operation  in  several  of  the 
European  states.  His  scheme,  however,  was 
a  great  novelty  in  Mexico,  and,  it  may  be'added, 
was  the  first  of  its  kind  in  the  New  World. 
In  this  later  day,  the  Massachusetts  Credit 
Union  law  and  the  Credit  Union  laws  of 
New  York  and  North  Carolina  may  be  said 
to  be  carrying  on  the  work  of  developing 
credit  institutions  to  meet  the  definite  needs 
of  groups  of  men  who  have  stood  quite  without 
the  pale  of  banks. 

1  Memoria  de  Hacienda,  1896-97,  p.  XVII. 


VII 

PREPARATIONS   FOR   A   GENERAL   BANKING   ACT 

WHEN  Limantour  came  into  authority  he 
found  before  him  three  large  problems : 
the  equalization  of  the  budget;  the  matter  of 
abolishing  the  alcabalas,  the  ancient  tax  on 
commerce;  and  the  enactment  of  a  general 
banking  law.  He  attacked  these  problems  in 
the  order  mentioned,  and  he  was  able  to  an- 
nounce, in  his  Memoria  de  Hacienda  for  the 
year  1895-96,  that  for  the  first  time  in  the 
history  of  Mexico  the  budget  of  the  country 
stood  with  a  balance  on  the  credit  side.1  The 
alcabala  taxes,  too,  were  finally  relegated  to 
discarded  tax  schemes.  The  third  large  problem 
remained,  and  now  that  his  hands  were  free,  he 
set  about  this  task  with  extraordinary  energy. 
He  petitioned  Congress,  April  20,  1896,  to 
authorize  the  President  to  promulgate  the  gen- 
eral bases  under  which  concessions  might  be 
granted  for  the  establishment  and  operation 
of  banks  of  emission.  And  he  announced  on 


1  Memoria  de  Hacienda.  1895-96,  p.  III. 

82 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

June  30th  that  Congress  had  acted,  and  that 
he  was  busy  studying  the  proposition  prepar- 
atory to  issuing  a  general  law  for  institutions 
of  credit.1 

He  went  on  to  say  that  since  the  middle  of 
June,  1892,  no  concession  had  been  granted  for 
a  bank  of  emission.  He  explained  that  this 
course  had  been  pursued  not  only  because  of 
the  delicate  situation  of  affairs  with  respect 
to  agriculture,  commerce,  and  industry,  and 
the  condition  of  the  Federal  Treasury,  but  be- 
cause each  bank  claimed  to  be  operating  in- 
dependently within  the  terms  of  its  concession 
— there  being  no  general  law  on  the  subject  of 
banking.  Disputes  and  controversies  had  in- 
evitably arisen,  not  only  between  the  branches 
and  agencies  of  banks,  but  between  parent 
banks  themselves.  Added  to  these  difficulties 
was  a  registered,  formal  complaint  against  the 
banks  of  emission  made  by  the  Banco  Nacional 
in  the  matter  of  issuing  notes.  The  position 
of  the  Banco  Nacional  was  undoubtedly  well 
taken,  in  point  of  law.  When  its  charter  of 
May  24,  1884,  had  been  reformed,  it  was 
clearly  the  intention  of  the  Mexican  govern- 
ment to  grant  the  bank  unrestricted  monopoly 
in  the  matter  of  note  issue;  but,  with  a  fine 
disregard  of  commitments,  the  administration 

1  Memaria  de  Hacienda,  1895-96,  p.  XXX. 
7  83 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

had  continued  freely  to  grant  concessions  in 
utter  violation  of  the  letter  and  spirit  of  the 
concession,  and  in  contempt  of  the  precepts 
of  the  Code  of  Commerce. 

Limantour  laid  stress  on  the  fact  that  this 
open  dispute  as  between  the  Banco  Nacional 
and  the  other  banks  with  respect  to  the  powers 
of  issue,  exposed  local  institutions  to  serious 
disturbance,  if  the  Banco  Nacional  should  dis- 
criminate against  notes  in  circulation  or  should 
press  an  action  at  law  against  them  severally 
or  collectively.  Therefore,  in  order  to  avoid 
collisions  between  the  banks  and  to  bolster 
the  position  of  the  banks  themselves,  he  had 
determined  upon  a  general  law  to  which  the 
banks  outside  of  the  Federal  District  should 
adhere,  and  to  obtain  from  the  Banco  Nacional 
certain  modifications  of  its  concession.1 

With  these  things  definitely  in  mind,  he 
proceeded  to  formulate  a  general  law.2  The 
Executive  was  authorized  to  promulgate  such 
law,  giving  a  general  status  to  banks  of  emis- 
sion in  the  states  and  territories  of  the  Repub- 
lic. The  large  heads  under  which  this  law 
would  be  carried  were  as  follows: 

1.  No  concession  to  be  granted  without  a 
deposit  of  bonds  of  the  public  debt  in  a 


1  Memoria  de  Hacienda,  1895-96,  p.  401.  2  Z&tcL,  p.  402. 

84 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

total  of  20  per  cent,  of  the  amount  of 
cash  required  by  law  to  be  in  the  vault 
of  the  bank  at  the  opening  of  business. 

2.  Minimum  capital  requirements,  P500,000, 
of  which  sum  50  per  cent,  was  to  be  paid 
in  cash. 

3.  Cash  in  vault  required  to  equal  one-half 
the  total  number  of  notes  in  circulation, 
plus  sight  deposits  and  deposits  on  three 
days'  notice. 

4.  No  bank  could  issue  notes  in  excess  of 
three  times  its  paid  capital. 

5.  Bank-notes  not  legal  tender,  and  none  to 
be  issued  for  a  sum  less  than  P5. 

6.  Provision  was  made  for  exemption  from 
taxation  for  only  the  first  bank  located  in 
each  state. 

7.  No  branch  banks  were  to  be  established 
outside  of  the  state  in  which  the  parent 
bank  was  located.    Exceptions  were  to 

be  made,  however,  in  some  cases,  and 
branches  were  to  be  permitted  in  possibly 
two  or  three  states. 

8.  Provision  was  made  for  government  repre- 
sentatives   in    the    banks   with    definite 
powers  of  supervision. 

85 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

9.  Statements  were  to  be  published  monthly 
showing  cash,  notes  in  circulation,  and 
deposits  payable  at  three  days'  sight  or 
less. 

10.  No  concessions  were  to  be  granted  until 
the  law  itself  was  promulgated. 

The  above  skeleton  outline  discloses  what 
was  in  Limantour's  mind  with  respect  to  the 
general  character  of  his  proposed  banks  of 
emission.  Laws  for  other  types  of  credit  in- 
stitutions were  to  be  devised,  or  it  was  thought 
that  possibly  the  whole  of  them  might  be  in- 
cluded under  one.  This  law  carried  transitory 
articles  to  the  effect  that  all  banks  then  in 
operation  in  the  states  were  to  be  con- 
sidered first  banks,  provided  they  gave  no- 
tice within  four  months  of  their  acceptance 
of  the  law,  and  bound  themselves  to  operate 
under  it. 

There  remained,  however,  some  delicate  ad- 
justments, not  only  with  the  Banco  Nacional 
on  the  score  of  amending  its  concession,  but 
with  other  banks  which  had  begun  operations 
with  federal  charters  carrying  broad  powers. 
We  shall  have  reason  to  see  that  Limantour 
handled  all  these  problems  vigorously  but 
tactfully,  and  withal  successfully. 

During    the    almost    four   years   in  -  which 

86 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

Limantour  had  served  as  head  of  the  Hacienda, 
banking  resources  in  the  Republic  had  grown 
with  fairly  surprising  rapidity.  It  may  not 
be  amiss  to  glance  hurriedly  at  some  of  the 
statements  during  these  quiet  years  in  which 
no  establishments  were  being  authorized. 
We  have  had  reason  on  another  occasion  to 
refer  to  the  panicky  years  of  1892  and  1893. 
While  the  banks  suffered  during  those  years, 
they  were  quick  to  respond  to  the  new  tide  of 
things  which  turned  in  1894.  A  consolidated 
statement  of  June  30th  of  that  year  indicates 
a  gain  in  cash  over  the  preceding  year  of 
P9, 776,896.  There  was  an  increase  in  note  cir- 
culation of  Pi, 875, 173;  but  there  had  been  a 
wholesome  reduction  in  current  accounts  re- 
ceivable of  P8,148,578.  The  increase  in  cash 
in  the  Banco  Nacional,  of  more  than  P6,000,- 
000,  was  due,  in  large  part,  to  foreign-loan 
operations  which  the  bank  had  conducted  for 
the  Treasury.  The  grand  total  of  resources 
for  the  banks  reporting  as  of  June  30,  1894, 
was  PIOO^IMGS.1 

The  following  year  saw  still  further  progress 
on  the  part  of  the  banks.  The  combined  state- 
ment as  of  June  30,  1895,  may  prove  of  in- 
terest. It  follows:2 

1  Memoria  de  Hacienda,  1893-94,  p.  461. 

2  Ibid.,  1894-95,  pp.  378,  379. 

87 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

RESOURCES 

Capital  unpaid P  14,240,000 

Mortgage  loans 2,817,133 

Secured  loans 4,167,953 

Current  accounts  receivable 21,652,660 

Cash 36,661,654 

Bills  receivable 29,525,040 

Furniture  and  fixtures 867,737 


Total P109,932,177 

LIABILITIES 

Capital P  33,910,342 

Notes  in  circulation 31,316,459 

Bonds 1,916,100 

Current  accounts  payable,  and  deposits      36,369,286 
Reserve 6,419,990 


Total P109,932,177. 

This  great  forward  stride  of  the  banks  was 
due  in  large  part  to  the  influx  of  foreign  in- 
vestors and  to  the  successful  flotation  of  foreign 
loans.  That  of  1893,  negotiated  by  Limantour, 
brought  tremendous  relief  to  the  Treasury. 
Through  this  loan  he  succeeded  in  retiring  a 
large  part  of  the  floating  indebtedness  of  the 
country.  While  the  loan  of  1888  had  been 
most  significant,  in  that  it  tended  to  consoli- 
date the  public  debt,  it  had  brought  nothing 
like  the  relief  attending  the  loan  of  1893.  The 

88 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

latter  had  produced  new  credits — and  at  a  very 
opportune  moment. 

The  statement  of  the  banks  as  of  June  30, 
1896,  showed  further  progress  in  practically 
all  departments.  It  runs : l 

RESOURCES 

Capital  unpaid P  14,040,000 

Mortgage  loans .  .  . 2,315,471 

Secured  loans 5,642,373 

Current  accounts  receivable 24,059,493 

Cash 40,587,428 

Bills  receivable 35,002,096 

Furniture  and  fixtures 959,549 


Total P122,606,410 

LIABILITIES 

Capital P  33,550,000 

Notes  in  circulation 35,642,868 

Bonds 1,914,500 

Current  accounts  payable,  and  deposits      44,442,925 
Reserve 7,056,117 


Total P122,606,410 

It  may  be  of  interest  to  note  that  of  the  total 
cash  exhibited,  the  vaults  of  the  Banco  Nacional 
held  P28,593,450;  and  of  the  total  loans  in 
the  portfolio,  it  carried  P21, 000,000;  and  that 
of  all  notes  in  circulation,  it  had  emitted 

1  Memoria  de  Hacienda,  1895-96,  Document  No.  170. 

80 


PRESENT  AND  PAST   BANKING  IN  MEXICO 

P21,250,154.  The  Banco  de  Londres  held  in 
its  vaults  P7,093,431  in  cash;  its  loans  reached 
P10,473,831 ;  and  its  notes  in  circulation  footed 
up  P9,501,476.  Thus,  it  will  be  seen  that 
these  two  strong  institutions  completely  dom- 
inated the  banking  firmament. 

While  Limantour's  plans  were  ripening,  in 
the  far  northern  state  of  Chihuahua,  where, 
as  we  have  seen,  four  banks  were  in  operation, 
salutary  consolidations  were  being  effected. 
First  of  all,  the  Banco  de  Chihuahua  went 
into  voluntary  liquidation,  and  after  that  the 
Banco  Mexicano  was  fused  with  the  Banco 
Minero,  this  operation  being  concluded  Janu- 
ary 1,  1896.  The  Banco  Minero,  dominated 
by  the  Creel  interests,  at  the  fusion  reported 
a  capital  of  Pi, 500,000,  with  a  reserve  of  P250,- 
000.  It  agreed  to  retire  the  notes  which  the 
Banco  Mexicano  had  put  in  circulation,  and 
it  further  engaged  itself  to  withdraw  from 
the  markets  its  25-  and  50-centavo  notes,  as 
soon  as  the  other  Chihuahua  banks  should  be 
brought  into  agreement.  Two  years  was  the 
time  fixed  for  this  operation.  The  fusion  ar- 
rangement had  been  made  under  the  direction 
of  Limantour,  and  he  agreed  with  the  Banco 
Minero  that  the  Hacienda  would  not  permit 
further  issues  of  25-  and  50-centavo  notes.  As 
a  further  consideration,  the  concession  of  the 

90 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

Banco  Minero  was  extended  ten  years — that  is 
to  say,  its  life  was  now  fixed  at  twenty-five 
years  instead  of  fifteen.  The  Banco  Minero 
conditionally  agreed  to  be  governed  by  the 
banking  law  which  Limantour  at  the  moment 
was  formulating;  but  specifically  agreed  to  ad- 
here to  it  during  the  last  ten  years  of  its  cor- 
porate existence — that  is  to  say,  for  the  period 
of  its  charter  extension:1 

Limantour  had  thus  begun  the  clearing  of 
the  ways  against  the  launching  of  a  general 
law.  At  the  instant,  too,  five  applications  for 
concessions  were  hanging  fire  before  Congress. 
Some  of  them  had  been  pending  for  several 
years.  These  were  ordered  withdrawn.  The 
holders  of  the  concession  for  the  Banco  Pan- 
Americano,  date  of  December  17,  1890,  were 
given  thirty  days  within  which  to  comply  with 
its  terms.2  The  concession  of  the  Banco  Agri- 
cola  e  Industrial  de  Mexico  was  annulled,  the 
following  paragraph  setting  out  the  govern- 
ment's case: 

In  conformity  with  the  last  part  of  Article  15  of  the 
concession  granted  to  you  by  this  Secretaria,  and  which 
was  approved  by  law  of  April  10,  1889,  promulgated  the 
llth  of  the  same  month  and  year,  to  establish  in  this 
capital  a  bank  called  Banco  Agricola  €  Industrial  de 

1  Memoria  de  Hacienda,  1895-96,  pp.  288-289. 
1  Ibid.,  1896-97,  p.  257. 

91 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

Mexico;  and  by  virtue  of  your  failure  to  deposit  P30,000 
of  bonds  of  the  consolidated  debt  within  four  months,  as 
per  article  cited,  to  guarantee  the  fulfilment  of  your  ob- 
ligations, the  President  of  the  Republic  has  assumed  the 
right  to  declare,  as  he  does  declare,  null  and  void  the 
mentioned  concession. 

The  date  of  this  annulment  edict  was  March 
16,  1897.  Eight  banking  concessions  for  agri- 
cultural banks  were  also  declared  void  on  that 
date,  and  three  concessions  for  banks  of  emis- 
sion suffered  a  like  fate.1 

Thus  Limantour,  at  a  stroke  of  the  pen,  laid 
low  a  number  of  "wildcat"  charters — which 
mainly  had  been  taken  out  for  speculative  pur- 
poses; that  is,  for  sale — for  Mexico  had  indeed 
passed  through  its  "wildcat"  period,  if  such 
period  can  be  said  ever  to  have  existed  in  that 
Republic.  As  a  matter  of  fact,  the  record  is  very 
much  cleaner  than  that  through  which  our  own 
country  passed  at  a  certain  stage  of  its  history. 
Mexico  suffered  no  bank  failures  at  this  time. 

Strictly  in  line  with  his  scheme  of  setting 
things  in  order,  the  concession  of  the  Banco 
de  Londres  was  modified,  as  of  date  of  August 
11,  1896.  The  capital  of  this  institution 
was  increased  from  P3,000,000  to  P10,000,000, 
and  the  life  of  its  concession  was  extended  to 
fifty  years  from  the  date  mentioned.2 

1  Memoria  de  Hacienda,  1896-97.  pp.  257-26!?.          s  Ibid.,  p.  239. 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

A  brief  resume  of  the  history  of  the  Banco 
de  Londres  may  not  be  out  of  place.  It  will  be 
recalled  that  on  June  22,  1864,  William  New- 
bold  obtained  from  the  Tribunal  de  Comercio 
a  patente  de  inscripcion  for  the  Banco  de  Lon- 
dres, Mexico  y  Sud  America,  domiciled  in 
London,  with  authority  to  create  in  Mexico  a 
branch  of  that  name.  Under  this  authorization, 
the  bank  operated  in  Mexico  until  the  Code  of 
Commerce  of  1884  was  issued.  Two  years  later 
it  bought  the  concession  of  the  Banco  Comer- 
cial.  On  account  of  certain  doubts  as  to  the 
meaning  of  clauses  in  the  concession  to  the 
Banco  de  Empleados — which  later  had  become 
the  Banco  Comercial,  of  date  June  12,  1883, 
and  May  11, 1886 — reforms  were  enacted  under 
date  of  August  21,  1889.  It  was  at  that  time 
that  the  title  of  the  bank  was  changed  to 
Banco  de  Londres  y  Mexico — for  our  purposes 
simply  the  Banco  de  Londres.  And  thus  the 
bank  continued  until  August,  1896,  at  which 
time  it  gained  from  Limantour  the  extension  of 
its  charter  as  indicated  above.  For  its  part, 
it  abandoned  the  right  which  it  had  to  estab- 
lish warehouses  (almacenes  de  deposito).1 

The  capital  of  the  bank  was  first  reported  as 
P500,000.  On  October  29,  1880,  it  sought  au- 

1  Memoria  de  las  Instituciones  de  Credito  for  the  years  1897-98-99, 
p.  XII. 

93 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

thority  to  increase  its  capital  to  Pl,000,000; 
and  July,  1889,  its  stock  was  brought  to 
Pl,500,000.  In  December,  1891,  it  was  au- 
thorized to  increase  to  P5, 000,000;  in  August, 
1896,  its  capital  reached  P10,000,000;  and  in 
1899,  P15, 000,000.! 

A  matter  of  infinitely  more  concern,  from 
the  point  of  view  of  the  government,  was  the 
necessary  arrangement  with  the  Banco  Na- 
cional  whereby  it  was  brought  to  relinquish 
its  monopoly  of  note  issue.  Limantour  was 
adroit  in  his  negotiations,  and  it  must  be  said 
that  he  worked  entirely  from  the  inside  in 
his  maneuvers.  On  June  15,  1896,  a  meeting 
of  the  stockholders  was  called  by  the  Banco 
Nacional  in  conjunction  with  the  Paris  board 
of  foreign  representatives  to  modify  the  con- 
cession of  May  15,  1884.2  At  this  meeting 
the  bank  agreed  to  the  establishment  of  banks 
of  emission  in  the  states  and  territories  of  the 
Republic,  provided  none  was  established  in  the 
Federal  District.  This,  of  course,  excepted  the 
Banco  de  Londres,  already  in  existence.  The 
life  of  the  Banco  Nacional,  by  virtue  of  this 
concession,  was  extended  fifteen  years;  the 
agreement  was  signed  September  8, 1896. 

1  Memoria  de  las  Instituciones  de  Crediio  for  the  years  1897-98-99, 
p.  XIII. 

2  Memoria  de  Hacienda,  1896-97,  pp.  240-241. 

94 


PREPARATIONS  FOR  GENERAL  BANKING  ACT 

There  were,  besides,  other  arrangements  to 
be  made  of  more  or  less  vital  import.  The 
bank  agreed  to  receive  from  federal  offices, 
in  every  part  of  the  country,  moneys,  and  to 
concentrate  them  in  the  capital.  The  bank  re- 
duced its  charge  from  2  per  cent,  to  1%  per 
cent,  for  this  service,  and  a  contract  was  exe- 
cuted to  run  for  ten  years.1  The  bank  further- 
more agreed  to  continue  to  serve  the  govern- 
ment on  the  score  of  the  public  debt,  reducing 
its  fee  from  2  per  cent,  to  1  per  cent,  on  all 
matters  touching  the  interior  debt.2  And, 
finally,  the  bank  contracted  to  advance  the 
government  P500,000  per  month,  or  P4,000,000 
maximum  for  the  year,  which  was  approxi- 
mately doubling  the  arrangement  set  out  in 
contracts  of  June  30,  1888,  and  August  12, 
1889.  The  interest  rate  was  fixed  at  6  per  cent., 
and  it  was  to  be  charged  daily,  the  bank  paying 
no  interest  on  government  balances.3 

When  Limantour  had  succeeded  in  bringing 
the  Banco  Nacional  to  modify  its  concession, 
he  was  ready  to  proceed  in  the  preparation  of 
his  general  law  for  institutions  of  credit.  He 
had,  indeed,  already  appointed  a  commission 
composed  of  distinguished  bankers,  publicists, 
and  economists  to  draft  a  measure;  and  in 

1  Memoria  de  Hacienda,  1896-97,  pp.  241-242.  *  Ibid.,  p.  243. 

8  Ibid.,  pp.  243-244. 

05 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

November,  1896,  the  plan  was  presented  to 
Congress.1  This  drafting  committee  was  com- 
posed of  the  heads  of  the  Banco  Nacional, 
Banco  de  Londres,  Banco  Hipotecario,  and  such 
distinguished  men  as  J.  D.  Casasus,  J.  M. 
Gamboa,  and  M.  S.  Macedo. 

In  a  very  interesting  report  to  Congress,2 
Limantour  recites  at  length  and  in  brilliant 
fashion  the  story  in  particular  of  Mexico's 
financial  troubles  and  of  her  efforts  to  reach 
clear  sailing  in  the  matter  of  her  banking  in- 
stitutions. He  referred  to  the  Code  of  Com- 
merce of  1884,  which  laid  down  rules  for  the 
guidance  of  banks,  which  rules  were  rendered 
dead  letters  at  once  because  of  the  concession 
to  the  Banco  Nacional.  He  also  referred  to 
the  new  code  of  1889,  which  repealed  the  bases 
fixed  in  the  earlier  one  with  respect  to  banks, 
thus  leaving  the  situation  entirely  clouded. 
It  was,  therefore,  necessary  for  the  government 
to  take  the  matter  in  hand.3  He  debated  at 
length  the  question  as  to  whether  the  monopoly 
of  note  issue,  or  multiplicity  of  banks  of  emis- 
sion, was  right  in  point  of  theory.  He  reached 
the  conclusion  that,  on  account  of  the  great 
scope  of  Mexican  territory,  its  isolated  com- 
munities favored  the  system  of  multiplicity 

1  Memoria  de  Hacienda,  1897-98,  p.  223.          *  Ibid.,  pp.  217-241. 
8  Ibid.,  p.  219. 

06 


of  banks  of  issue.  He  recited  that  where 
monopolies  of  note  issue  existed,  the  countries 
were  small  and  with  compact  populations.1 

However,  he  was  against  the  absolute  and 
unrestricted  liberty  of  banks.  The  ignorance 
of  the  masses  as  to  values  and  the  want  of 
confidence  in  banks  outside  the  cities  de- 
manded that  banking  development  should  be 
closely  controlled.  For  this  reason,  after  the 
first  banks  were  established,  those  which  fol- 
lowed were  to  be  taxed.  He  feared  the  reac- 
tion of  the  public  against  any  banking  measure, 
in  case  of  the  failure  of  a  single  bank.2 

With  singular  clarity  of  view,  Limantour 
foresaw  the  probable  failure  of  his  Bancos 
Hipotecario  and  his  Bancos  Refaccionario — 
mortgage  banks,  and  the  so-called  banks  of 
promotion.  The  bad  showing  made  by  them 
prior  to  his  entry  into  the  Hacienda  was  well 
known.  His  own  words  with  respect  to  these 
types  of  banking  institutions  were: 

But  we  must  not  embrace  the  illusion  that  these 
institutions  [referring  to  the  Bancos  Hipotecario  and 
Bancos  Refaccionario]  will  promptly  multiply;  that  will 
not  be  until  there  has  developed  the  spirit  of  enter- 
prise among  us,  until  we  appreciate  practically  the  man- 
ner of  functioning  of  these  banks  and  the  benefits  to 
follow  from  them.3 

1  Memoria  de  Hacienda,  1897-98,  p.  219.  2  Ibid,,  p.  220. 

3  Ibid.,  p.  289. 

97 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

It  was  evident  from  the  first  that  Limantour 
expected  much  greater  things  from  his  banks 
of  emission,  but  such  expectation  abated  in 
no  whit  the  ardor  with  which  he  pursued  the 
idea  that  mortgage  and  auxiliary  banks  might 
be  made  to  grow  in  importance  in  Mexico. 
His  Banco  Refaccionario  was  but  another  name 
for  those  banks  which  had  been  chartered 
under  De  la  Pena  and  Dublan,  and  styled 
agricultural,  industrial,  and  mining  banks.1 

The  general  draft  of  the  law  for  institutions 
of  credit  was  debated  to  some  extent  in  Con- 
gress, but  it  received  no  amendments  of  im- 
portance, and  finally,  on  March  19,  1897,  it 
was  placed  on  the  statue-books  of  the  country. 


have  no  term  equivalent  to  "Refaccionario."  "Promotion" 
has  been  used  to  some  extent  by  authorities,  but  the  connotation  of 
this  English  word  does  not  cany  the  import  of  the  Spanish.  "Auxil- 
iary "  much  more  nearly  fills  the  conditions,  and  we  shall  make  use  of 
this  term  where  we  do  not  employ  "Refaccionario." 


VIII 

GENERAL   LAW   FOR  INSTITUTIONS   OF   CREDIT 

THE  framers  of  the  general  law  for  institu- 
tions of  credit  had  in  mind  a  plan  to  de- 
velop three  distinct  types  of  bank,  which,  in 
their  view,  covered  nearly  all  phases  of  bank- 
ing activity.  They  were  more  or  less  familiar 
with  these  types  through  having  come  in  con- 
tact with  them  in  the  Republic.  They  were: 

1.  Banks  of  emission. 

2.  Mortgage  banks. 

3.  Agricultural,  industrial,  and  mining  banks. 
The  names  chosen  by  the  committee  for  the 

three  classes  in  their  new  scheme  were  as  in- 
dicated above,  save  that  the  agricultural  banks 
were  changed  to  Bancos  Refaccionarios,  or 
auxiliary  banks.  It  is  noteworthy  that  no 
effort  was  made  to  incorporate  in  the  law  a 
plan  covering  savings-banks.  However,  it  is 
not  difficult  to  understand  the  conditions  which 
brought  them  to  ignore  so  important  a  develop- 
ment in  other  fields  of  the  world.  There  were 
no  savings  of  consequence  in  Mexico. 

8  99 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

It  was  evident  to  those  concerned  in  the 
preparation  of  the  law,  and  chiefly  Limantour, 
that  the  banks  of  emission  would  predominate 
in  point  of  power  and  influence.  Therefore, 
the  real  burden  of  the  law  was  to  prepare  a 
scheme  whereby  these  banks  might  be  freely 
developed,  and  at  the  same  time  harmonized 
as  between  state  and  state.  No  essential 
change  was  made  in  the  bases  announced  for 
this  type  of  bank.  We  have  briefly  dealt  with 
these  in  the  preceding  chapter,  and  there  is 
small  reason  for  further  exposition.  After  all, 
they  varied  little  from  the  type  of  bank  de- 
veloped by  De  la  Pena  and  fostered  by 
Dublan. 

The  general  provisions  of  the  law  of  March 
19,  1897,  carried  definitions  of  the  three  classes 
of  banks.  They  run  substantially  as  follows:1 

I.  Banks  of  issue  are  those  which  issue  notes  of 
fixed  denominations,  payable  at  par,  on  demand 
and  to  bearer. 

II.  Mortgage  banks  are  those  which  make  loans 
secured  by  urban  and  rural  properties,  and  issue 
bonds  secured  by  the  same  guaranty,  which  bear 
interest  and  are  redeemable  under  fixed  condi- 
tions and  at  definite  dates. 

III.  Auxiliary  banks,  or  banks  of  promotion,  are 
those  especially  designed  to  encourage  mining, 
agricultural,  and  industrial  enterprises,  which 

1  Ley  de  Instituciones  de  Cr6ditot  March  16, 1897,  Chap.  I,  Arts.  3-5. 

100 


GENERAL  LAW  FOR  INSTITUTIONS  OF  CREDIT 

make  preferred  loans  secured  by  mortgage,  which 
guarantee  given  undertakings,  and  which  issue 
short-time  bonds  or  certificates  running  for  a 
fixed  time  and  payable  on  given  dates. 

Among  the  other  general  provisions,  the 
capital  stock  was  fixed  for  the  three  classes 
as  follows:  P500,000  for  the  first  and  second 
types,  and  P200,000  for  the  auxiliary  banks. 
The  express  authorization  of  the  Department 
of  Hacienda  was  necessary  for  the  increase  or 
decrease  of  the  capital  of  a  bank,  and  no  cor- 
poration could  be  said  to  be  organized  until 
the  capital  was  fully  subscribed  and  at  least 
50  per  cent.  paid.  A  salutary  ruling  was  also 
fixed  in  the  requirement  that  10  per  cent, 
of  the  net  profits  should  annually  be  set  aside 
for  a  reserve  until  it  amounted  to  one-third  or 
more  of  the  capital. 

The  law  was  emphatic  in  ruling  that  foreign 
institutions  of  credit  issuing  notes  payable  on 
demand  to  bearer  were  not  to  be  allowed  to 
open  branches  or  agencies  in  the  Republic  for 
the  redemption  of  such  notes.  The  state 
banks  were  granted  the  right  to  issue  notes 
in  denominations  ranging  from  P5  to  Pl,000, 
and  in  volume  equal  to  twice  the  metallic 
reserves,  less  deposits  at  sight  and  three  days' 
notice.  But  at  no  time  might  the  circulation 

exceed  three  times  the  paid  capital.  They  were 

101 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

forbidden  to  make  loans  or  discounts  for  a 
term  longer  than  six  months,  to  discount  notes 
or  commercial  paper  bearing  less  than  two  sig- 
natures of  well-known  solvency,  to  mortgage 
their  real  property  or  borrow  on  their  credits, 
to  pledge  their  bank-notes  or  contract  obliga- 
tions respecting  them. 

Banks  of  issue  were  to  be  established  in  the 
states  and  federal  territories,  but  they  were  not 
to  encroach  on  the  Federal  District,  where  the 
Banco  Nacional  and  the  Banco  de  Londres 
maintained  their  monopolies. 

As  for  mortgage  banks,  the  minimum  capital 
was  fixed  at  P500,000,  and  they  were  permitted 
to  make  two  classes  of  mortgage  loans,  one, 
principal  reimbursable  within  short  periods; 
the  other  for  terms  not  exceeding  forty  years, 
principal  and  interest  to  be  paid  in  instal- 
ments. Mortgages  were  to  be  first  liens  and 
based  on  a  50-per-cent.  valuation  of  property. 
In  order  to  bolster  the  refaccion,  or  auxiliary, 
banks,  mortgage  banks  were  forbidden  to  loan 
on  mines,  forests,  etc.1  Mortgage  bonds  were 
permitted,  rate  of  interest,  dates  of  payment, 
etc.,  to  be  determined  by  the  bank,2  A  guar- 
anty fund,  representing  more  than  a  half- 
year's  interest  payment  on  outstanding  bonds, 

1  Ley  de  Instiluciones  de  Credito,  Chap.  Ill,  Art.  48. 

2  Ibid.,  Chap.  Ill,  Art.  56. 

102 


GENERAL  LAW  FOR  INSTITUTIONS  OF  CREDIT 

was  required  of  the  bank;  and  the  bonds  were 
given  priority  as  to  reserves  and  capital. 

In  addition  to  making  loans  on  real  estate, 
mortgage  banks  were  permitted  "to  invest 
their  funds  in  the  purchase  of  their  own  mort- 
gage bonds,  or  other  securities  of  the  first  class" ; 
to  make  loans  to  run  not  more  than  six  months 
on  first-class  securities;  to  receive  deposits  on 
current  account,  with  or  without  interest;  to 
deal  in  exchange,  and  drafts  of  not  more  than 
six  months'  maturity;  to  buy  and  sell  all  kinds 
of  securities;  to  lend  on  security  of  their  own 
bonds  as  a  bail  or  pledge.1 

An  effort  was  made  to  define  the  character 
of  securities  which  would  be  regarded  as  ac- 
ceptable. It  is  noteworthy  that  mining  stocks 
were  forbidden.  Only  stocks,  dividend-paying 
for  at  least  two  years  prior  to  date  of  loan  and 
listed  in  the  markets,  were  to  be  approved. 
Deposits  might  be  received  until  they  totaled 
five  times  the  paid  capital;  the  reserve  against 
this  liability  was  to  be  specie  or  bullion  and 
readily  realizable  securities  equal  to  two- 
thirds  of  the  whole.2  These  banks  were  for- 
bidden to  issue  bank-notes  or  any  form  of 
bank  demand  paper. 

The  mortgage  banks  achieved  an  indifferent 

1  Ley  de  Instituciones  de  Crtdito,  Chap.  Ill,  Art.  73,  sees.  I-VI. 
1  Ibid.,  Chap.  Ill,  Art.  75. 

103 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

success.  Success  here  depended  largely  on 
their  ability  to  dispose  of  bonds  based  on  real 
estate,  for,  once  their  funds  were  invested, 
if  bonds  could  not  be  sold,  matters  would  come 
to  an  impasse.  The  very  fact  of  success  turned 
on  an  investing  public,  which  was  practically 
non-existent  in  Mexico.  There  was  doubtless 
in  the  minds  of  the  men  who  drew  the  banking 
measure  the  expectation  that  bond  issues  ema- 
nating from  these  institutions  would  find  a 
ready  market  in  Europe,  on  account  of  high 
interest  rates.  In  this  way  it  was  hoped  that 
a  constant  stream  of  funds  would  be  created 
which  would  enable  these  institutions  to  con- 
tinue their  operations.  And  they  were  not 
wholly  disappointed  in  their  expectations  of 
developing  European  markets,  for,  indeed,  in 
1910,  bonds  of  this  character  floating  in  French 
markets  mounted  to  several  millions.  And  it 
may  be  added  that  they  are  still  floating  in  the 
markets,  interest  as  well  as  principal  unpaid. 

The  minimum  capital  of  the  refaccion  banks 
was  fixed  at  P£00,000,  and  it  was  intended  that 
these  institutions  should  foster  Mexican  in- 
dustries, chiefly  mining  and  agriculture.  They 
were  authorized  to  make  loans  not  to  run 
longer  than  two  years;  and  to  issue  bonds  to 
be  secured  by  mortgage  on  tools,  equipment, 
and  prospective  products  of  mines  or  agri- 

104 


GENERAL  LAW  FOR  INSTITUTIONS  OF  CREDIT 

cultural  enterprises.  They  were  also  empow- 
ered to  make  loans  on  collateral  under  the 
restrictions  observed  by  banks  of  emission. 
Treasury  bonds,  or  bonos  de  caja,  might  be 
issued  up  to  twice  the  paid  capital,  and  time 
and  demand  deposits  might  be  received,  but 
they  were  forbidden  to  issue  bank-notes.1 

The  law  touching  this  type  of  bank  was  de- 
fective in  several  essentials  and  was  in  due 
course  to  be  almost  completely  rewritten.  In 
the  first  place,  no  reserve  requirement  against 
deposits  had  been  fixed;  and,  secondly,  the 
vital  proposition  as  to  priority  of  lien  as  be- 
tween the  mortgage  and  the  auxiliary  banks 
had  not  been  clearly  established.  This  con- 
fusion resulted  in  a  deal  of  trouble,  for  fre- 
quently both  types  of  bank  loaned  to  the  same 
hacendado  and  in  the  event  of  foreclosure  there 
were  conflicting  interests.  We  shall  find  that 
Limantour  attacked  these  problems  with  vigor. 

Briefly,  we  have  traced  the  large  outlines  of 
the  general  law.  The  vested  interests  of  the 
private  banks  already  established  in  the  Re- 
public were  safeguarded,  but  it  was  decreed 
that  they  should  affix  to  their  titles  the  words 
"without  franchise."  It  had  indeed  been  pro- 
vided as  early  as  May,  1893,  that  no  private 
institution  should  open  for  business  without 

1  Ley  de  Instituciones  de  Cr&dito,  Chap.  IV,  Arts.  88-98. 

105 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

first  securing  the  approval  of  the  Minister  of 
Hacienda  and  agreeing  to  conform  to  the  Code 
of  Commerce. 

On  account  of  the  great  extent  of  the  coun- 
try, its  variety  of  natural  resources,  it  was  re- 
garded as  essential  that  banks  should  be  widely 
sown  and  localized  as  far  as  possible.  It  was 
further  regarded  as  highly  desirable  that  de- 
structive competition  should  be  avoided.  This 
was  provided  for  in  the  clause  of  the  law  laying 
heavy  burdens  on  any  additional  state  bank 
in  each  several  state  after  the  first  had  been 
planted.  This  was  a  laudable  restriction  and 
operated  entirely  to  the  advantage  of  both 
individual  and  bank.  In  the  United  States, 
and  in  many  states,  we  have  had  illustration 
of  the  destructive  processes  which  forgather 
where  banking  competition  is  permitted  to  run 
riot.  The  most  recent  disaster  of  this  sort  is 
found  in  the  history  of  Oklahoma,  where  a 
number  of  bank  failures  were  directly  at- 
tributable to  competition — two  or  more  banks 
having  been  permitted  to  open  their  doors 
in  a  city  scarcely  mustering  capital  enough  to 
support  one.  Mexico  was  safeguarded  through 
the  wisdom  of  Limantour  from  the  over- 
multiplication  of  banking  establishments. 

Another  large  end  was  gained  through  the 

organization  of  banking  machinery.    The  par- 
ice 


GENERAL  LAW  FOR  INSTITUTIONS  OF  CREDIT 

ent  bank  was  permitted  to  establish  branches 
very  much  after  the  Canadian  system,  which 
owned  a  Scotch  origin.  It  was  sound  reason- 
ing which  restricted  the  operations  of  state 
banks  to  definite  sections.  There  can  be  no 
gainsaying  the  fact  that  experience  has  proved 
that  there  is  more  virtue  in  the  branch  bank- 
ing system  than  in  the  contra-distinguished, 
competitive  national  banking  system  of  the 
United  States.  While  the  law  in  its  terms  did 
not  create  a  monopoly  protecting  the  first 
bank  chartered  in  any  state,  in  its  operations 
it  was  tantamount  to  that  on  account  of  the 
great  privileges  extended.  These  ran  over  a 
term  of  years  and  were  such  as  to  render  prac- 
tically impossible  future  competition.  Clearly 
it  was  Limantour's  purpose  to  make  the  prize 
worth  the  seizing  on  the  instant — in  short, 
so  great  the  inducement  that  the  organization 
of  banks  in  the  several  states  would  be  pressed 
at  the  earliest  possible  moment. 

But  the  granting  of  charters  under  the  new 
law  was  to  be  done  under  restrictions.  It  was 
provided  that  the  preliminary  concession  of  a 
bank  might  be  granted  to  not  less  than  three 
individuals,  and  that  within  four  months  the 
concession  must  have  passed  to  a  joint  stock 
company.1 

1  Ley  de  Instituciones  de  Crtdito,  1897,  Chap.  I,  Arts.  8-11. 

107 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Emphasis  also  was  laid  upon  the  importance 
of  keeping  the  banks  of  emission  closely  reined. 
This  is  evidenced  by  the  article  which  fixed 
the  duration  of  the  charter  at  thirty  years  from 
the  date  of  the  enactment  of  the  law,  while  fifty 
years  was  the  term  for  the  two  other  classes  of 
banks.  The  experience  of  the  world  had  shown 
that  the  commercial  type  of  bank  tends  more 
rapidly  to  vary  in  character,  due  to  the  evo- 
lutionary changes  of  business,  than  do  those 
types  of  bank  dealing  with  the  more  substantial 
forms  of  property,  such,  for  instance,  as  real 
estate.  Besides,  the  experience  of  France, 
England,  and  other  countries  disclosed  that 
governments  invariably  have  been  able  to 
effect  better  arrangements  with  their  state 
banks,  when  occasions  have  arisen  for  the 
extension  of  charters.  And  so,  doubtless, 
Limantour  also  had  this  in  mind  when  he 
wrote  that  article  in  his  code. 

The  special  advantages  which  fell  to  the 
first  bank  organized  in  any  state  may  be 
briefly  summarized  as  follows:  capital,  divi- 
dends, and  issues  of  securities  were  exempted 
from  federal,  state,  and  municipal  taxation, 
save  the  tax  on  buildings  and  certain  modified 
stamp  taxes.  All  other  banks  of  issue  later  to 
be  organized  were  to  be  subject  to  all  the  taxes 
imposed  by  law,  and  a  special  federal  tax  of 

108 


GENERAL  LAW  FOR  INSTITUTIONS  OP  CREDIT 

2  per  cent,  per  annum  on  the  paid  capital 
stock.1 

The  banking  law  of  1897  was  admittedly  a 
compromise,  due  in  part  to  the  conditions  im- 
posed through  the  presence  of  nine  distinct 
banking  institutions  in  the  country,  and  partly 
to  the  fact  that  Senor  Limantour  and  his  ad- 
visory committee  believed  in  localization.  In 
short,  a  central  bank  for  each  state,  with 
branches,  appeared  better  adapted  to  meet  the 
needs  of  the  country  than  could  a  central 
bank  of  issue  operating  through  branches. 
And  yet,  in  substance,  this  very  situation  pre- 
vailed, inasmuch  as  the  Banco  Nacional  and 

1  Other  advantages  falling  to  first  banks  were: 

Stamp  taxes  were  unnecessary  on  documents  arising  from  the  in- 
ternal management  of  the  bank  or  on  documents  circulating  between 
the  parent  institution  and  its  branches  and  agencies,  conditioned  on 
such  documents  not  creating  rights  in  favor  of  the  bank  or  of  third 
parties.  Stamp  taxes  were  not  required  on  contracts  between  the 
federal  government  and  banks,  or  between  state  governments,  munici- 
palities, and  banks. 

Stamp  taxes  were  unnecessary  on  receipts,  drafts,  bills,  and  notes, 
where  the  business  related  to  affairs  of  the  federal,  state,  or  municipal 
governments. 

A  tax  of  five  centavos  only  was  fixed  on  checks  drawn  by  or  upon 
a  bank  without  consideration  of  the  amount.  This  rule  covered  the 
issue  of  bank-notes,  mortgage  bonds,  certificates  of  deposit,  and 
treasury  bonds,  when  put  in  circulation. 

The  fees  of  notaries  and  other  persons  fixed  by  law  were  to  be  re- 
duced by  one-third  from  the  schedule. 

The  states  of  the  Federation  were  prohibited  from  imposing  any  tax 
on  banks,  except  on  mortgage  loans,  where  the  tax  of  a  quarter  of 
1  per  cent,  of  the  total  of  the  transaction  was  allowed. 

109 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

the  Banco  de  Londres  were  both  authorized 
under  their  charters  to  establish  branches 
throughout  the  Republic;  and,  indeed,  they 
had  been  doing  this  very  thing,  not  feverishly, 
but  deliberately,  so  that  already  the  leading 
cities  of  Mexico  were  bound  to  the  two  parent 
banks  in  the  capital,  through  branch  estab- 
lishments. 

It  was,  then,  the  purpose  of  Limantour  to 
create  a  dual  system;  state  banks  with  branches 
independent  one  from  the  other,  and  a  quasi- 
national  bank  with  branches.  Nor  was  the 
Banco  de  Londres  to  be  left  out  of  count.  It, 
too,  might  extend  its  ramifications  to  the  ends 
of  the  land,  strengthening  the  banking  fabric 
by  supporting,  first,  the  operations  of  the 
Banco  Nacional;  and,  second,  by  binding  the 
state  banking  institutions  a  little  more  closely 
together. 

There  developed,  however,  almost  at  once 
on  the  beginning  of  operations  by  state  banks 
a  serious  defect  in  the  system.  By  the  terms 
of  the  law,  state  banking  institutions  were  for- 
bidden to  establish  agencies  to  emit  or  redeem 
notes  in  the  Federal  District,  on  account  of 
the  monopoly  which  had  been  granted  the 
Banco  Nacional.  This  was  a  contingency  which 
had  need  to  be  met  at  once;  otherwise  the  notes 

of  the  state  banks  of  emission  could  not  fail 

no 


GENERAL  LAW  FOR  INSTITUTIONS  OF  CREDIT 

to  be  discounted  in  the  markets.  These  notes 
must  inevitably  travel  beyond  the  borders  and 
beyond  the  bounds  of  operation  of  even  the 
branches  in  the  several  states;  obviously,  then, 
unless  some  uniformity  of  action  could  be  de- 
veloped as  between  the  state  banks  and  some 
central  redemption  agency  in  the  capital,  great 
confusion,  and  possibly  disaster,  would  attend 
the  launching  of  the  system.  The  point  in- 
volved was  not  so  much  as  to  who  should 
eventually  bear  the  discounts — which  were  in 
effect  costs  of  exchange — but  the  whole  vitality 
of  the  system  itself  was  at  stake.  For,  obvious- 
ly, if  the  public  could  not  exchange  a  5 -peso 
note  of  a  state  bank  of  Chihuahua  for  5  silver 
pesos  in  the  capital,  the  public  would  refuse  to 
accept  the  note.  The  Mexican  people  had  not 
been  educated  to  the  point  of  appreciating  the 
value  of  paper  currency;  and  certainly  if  paper 
currency,  purporting  to  command  the  equiva- 
lent of  so  much  silver,  were  in  fact  not  such 
equivalent,  the  average  man  would  none  of  it. 
And  it  goes  without  saying  that  the  note- 
issuing  prerogatives  of  the  state  banks  of  issue 
carried  the  essential  values  of  their  conces- 
sions. 

So,  in  their  dilemma  the  state  bankers  early 
conceived  the  notion  of  organizing  a  central 

bank  in  the  capital,  with  a  view,  first,  to  effect- 
in 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

ing  the  exchange  operations  involved  in  the  re- 
demption of  bills;  and  secondly,  to  undertake 
some  of  the  other  functions  of  a  large  central 
bank.  Such  a  conception  at  once  gave  birth 
to  the  Banco  Refaccionario  Mexicano. 


IX 

THE   BANCO   REFACCIONARIO   MEXICANO 

T  first  it  was  not  clear  just  what  type  of 
central  banking  institution  should  be  es- 
tablished; nor  was  it  clear  how  the  plain  terms 
of  the  law  might  be  evaded,  if,  indeed,  Secre- 
tary Limantour  would  permit  such  evasion. 
It  will  be  recalled  that  under  the  law  the  state 
banks  were  debarred  from  maintaining  agents 
in  the  Federal  District.  This  negation  had 
been  forced  into  the  law  through  the  attitude 
of  the  Banco  Nacional,  acting  within  the  terms 
of  its  concession.  But,  as  in  the  first  instance 
where  the  government  granted  monopoly  of 
note  issue  to  the  Banco  Nacional  and  ignored 
it  in  practice,  by  granting  concessions  to  other 
banks — so  now  Limantour,  marking  the  seri- 
ous defect  in  the  law,  entered  no  objection; 
and  the  Banco  Nacional,  doubtless  realizing 
the  futility  of  protest,  and  appreciating  the 
fundamental  necessity  of  maintaining,  as  far 
as  possible,  a  universal  parity  of  paper  cur- 
rency, remained  silent. 

113 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

The  concession  of  the  Banco  Refaccionario 
Mexicano  was  dated  October  12,  1898.  Its 
capital  was  fixed  at  Pi, 000,000,  with  domicile 
in  Mexico  City.  It  was  empowered  to  estab- 
lish four  branches  in  the  Republic,  and  others 
might  be  established  if  Pi 00,000  for  each 
branch  was  added  to  the  capital  of  the  institu- 
tion. It  was  to  enjoy  tax  exemption  for  twenty- 
five  years,  and  the  term  of  its  charter  was  for 
forty  years,  dating  from  March  19,  1897. 
Strictly,  under  the  law,  it  was  entitled  to  a 
corporate  life  of  fifty  years,  but  on  account  of 
the  contemplated  character  of  its  functioning, 
Limantour  chose  to  restrict  it. 

With  the  exception  of  making  two-year  loans 
to  miners,  farmers,  and  manufacturers,  the 
bank  could  make  no  loan  to  exceed  six  months, 
and  that  on  two  responsible  signatures.  The 
bank  was  permitted  to  issue  bonos  de  caja 
(cash  bonds)  in  a  volume  five  times  the  paid 
capital.  They  were  not  at  any  time,  however, 
to  exceed  the  cash  on  hand  plus  the  securities 
immediately  realizable  or  negotiable.  It  may 
be  interesting  to  note  the  classifications  and 
definitions  of  these  latter.  They  are  as  follows : 

(a)  Commercial  obligations  not  running  longer  than 

the  operations  they  represent. 
(6)  Mortgage  bonds  emitted  by  banks  or  commercial 

associations. 

114 


THE  BANCO  REFACCIONARIO  MEXICANO 

(c)  Bonds  of  the  Mexican  government. 

(d)  Bonds  or  other  securities  quoted  in  the  markets, 
or  bourses  of  Mexico,  Paris,  and  London,  and 
which  have  paid  dividends  for  two  years  prior  to 
purchase  by  the  bank.1 

For  five  years  the  bank  was  permitted  to  cir- 
culate its  cash  bonds  without  limitation.  After 
that  term,  a  minimum  of  P500,000  was  re- 
quired to  be  maintained  in  circulation,  if  the 
paid  capital  of  the  institution  remained  un- 
changed. If,  however,  the  capital  was  in- 
creased in  the  mean  time,  bonos  de  caja  should 
be  issued  in  a  total  of  50  per  cent,  of  the  sum. 
The  bank  was  compelled  under  the  law  to  meet 
the  requirement  of  keeping  its  bonds  in  circu- 
lation on  penalty  of  forfeiting  its  exemptions. 

The  bank  was  forbidden  to  issue  notes  pay- 
able at  sight  and  to  bearer,  and  was  required 
to  express  plainly  in  its  bonos  de  caja  the  time 
they  were  to  run,  the  interest  rate,  and  the 
bank  was  authorized  to  issue  them  to  bearer 
or  to  order.  The  security  of  those  handling 
bonos  de  caja  was  established  in  that  they  were 
made  preferred  creditors.  Federal  officers  were 
forbidden  to  act  as  officials  in  the  bank. 

On  January  28,  1899,  the  bank  expressed  a 
desire  to  modify  its  concession.  It  changed 

1  Memoria  de  las  Imtituciones  de  Crtdito,  1897-98-99,  p.  498. 

2  Ibid.,  p.  499. 

9  115 


PRESENT  AND   PAST  BANKING  IN   MEXICO 

its  name  to  Banco  Central  Mexicano,  and  in- 
creased its  capital  stock  to  P6,000,000.  On 
February  16th,  the  bank  opened  with  P3,000,000 
of  capital  paid  in.1  The  operation  of  the  in- 
stitution provided  for  close  co-operation  with 
the  state  banks.  Its  stock — PlOO  par  value- 
was  divided  into  two  series,  known  as  capital 
A  and  capital  B.  Of  the  first,  there  were  to 
be  50,000  shares,  and  of  the  second,  10,000 
shares.2  The  stock  of  series  A  was  to  be  held 
by  the  public;  the  second  could  only  be  held 
by  those  state  banks  enjoying  the  right  to  be 
first  banks.  This  relation  further  involved  the 
right  of  the  state  bank  to  act  as  correspondent. 
In  order  to  fix  this  relation  of  correspondent 
with  the  Banco  Central  in  Mexico  City,  the 
state  banks  were  required  to  invest  in  the  stock 
of  the  Banco  Central  at  least  5  per  cent,  of 
their  paid  capital.  The  stock  held  by  the 
banks  carried  a  provision  to  the  effect  that  after 
ten  years  the  holders  of  such  stock  might  ex- 
change it  for  shares  A.3 

Originally  it  was  planned  that  only  50  per 
cent,  of  the  stock  (series  B)  held  by  the  banks 
should  be  paid  in,  but  after  the  Banco  Central 
had  been  in  operation  a  comparatively  short 
time  the  whole  subscription  was  called. 

1  Memoria  de  las  Instituciones  de  Crtdito,  1897-98-99,  pp.  499-500. 

2  Ibid.,  p.  500.  8  Ibid.,  pp.  501-502. 

116 


THE  BANCO  REFACCIONARIO  MEXICANO 

If  there  was  any  virtue  in  the  alliance  above 
indicated,  it  lay  in  the  fact  that  the  control 
of  the  Banco  Central  was  partially  left  with 
its  stock-holding  banks,  and  under  the  condi- 
tions it  would  presuppose  a  management  favor- 
able to  the  interests  of  the  state  institutions. 
Unhappily,  the  executives  from  the  first  had 
entangling  alliances  with  banks  and  with  in- 
dividuals, which  were  most  unfortunate. 

But  the  Banco  Central  did  get  under  way, 
and  with  flattering  prospects.  Through  power- 
ful influences  one-half  of  the  capital  of  the 
bank  was  supplied  through  a  syndicate,  com- 
posed of  the  Deutsch  Bank,  Bleichroeder  & 
Co.,  and  J.  P.  Morgan  &  Co. — a  syndicate 
controlling  a  majority  of  the  board  of  directors. 
But  these  holdings  were  quietly  passed  into 
Mexican  hands,  with  profits  to  the  under- 
writers. 

The  similarity  of  the  schemes  involved  in 
the  relation  of  the  state  banks  to  the  Banco 
Central  and  the  relation  of  the  national  banks 
of  the  United  States  to  Federal  Reserve  banks 
is  worthy  of  remark.  The  similarity  is  more 
suggestive,  however,  than  rigid;  but  even  the 
functioning  of  the  two  schemes  has  points  in 
common. 

The  Banco  Central  was  designed  to  meet  a 
definite  need — and  the  same  is  true  of  the 

117 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

Federal  Reserve  banks.  It  was  merely  a  mat- 
ter of  designing  the  machine.  Both  were  con- 
cerned with  unifying  processes.  Both  grew 
out  of  pre-existent  situations.  New  types  are 
not  developed  in  a  day.  The  logic  of  the 
situation  lies  in  isolating  the  faulty  agents  and 
then  in  strengthening  them  by  the  substitu- 
tion of  new  and  more  efficient  machinery.  But 
always  this  should  be  done  through  appropri- 
ating the  known  and  tried,  rather  than  the 
imposition  or  substitution  of  machinery  un- 
known to  the  mass  of  men  who  daily  come  in 
contact  with  the  outward  facets  of  finance  and 
banking. 

The  state  banks  were  tied  to  the  Banco  Cen- 
tral not  only  by  artificial,  but  by  written  bonds. 
A  contract  was  made  for  a  year,  in  which  the 
Banco  Central  opened  with  each  local  bank  a 
current  account,  admitting  a  debtor  balance 
in  a  total  of  10  per  cent,  of  its  paid-up  capital. 
If  this  account  showed  a  balance  in  favor  of  the 
local  bank,  5  per  cent,  interest  was  to  be  allowed 
thereon.  If  it  ran  in  favor  of  the  Banco  Central, 
the  local  bank  was  to  pay  7J^  per  cent,  on  such 
balance.  If  the  state  bank  maintained  a  bal- 
ance in  excess  of  10  per  cent,  of  its  capital,  it 
was  to  be  allowed  8  per  cent,  on  such  deposit, 
but  was  to  pay  9j^  per  cent,  to  the  Banco 
Central  if  the  latter  carried  a  line  in  excess 

118 


THE  BANCO  REFACCIONARIO  MEXICANO 

of  10  per  cent,  of  the  capital  of  said  state  bank. 
Adjustments  of  interest  were  to  be  made  semi- 
annually.     The  Banco  Central  further  agreed 
to  redeem  at  par  the  notes  of  the  state  banks 
in  a  total  equal  to  the  line  of  credit  granted. 
The  only  reservation  exacted  by  the  Banco 
Central  was  that  it  had  the  right  to  refuse  notes 
if  presented  for  redemption  in  abnormal  vol- 
ume, or  if  there  were  reason  to  suspect  the 
solvency  of  the  issuing  bank.    The  Banco  Cen- 
tral further  obligated  itself  to  discount  the  bills 
receivable  of  the  state  banks;  to  buy  and  sell 
exchange  on  their  order,  levying  a  commission  of 
4  per  cent,  on  the  net  profits  of  the  transaction. 
Finally,  a  far-reaching  arrangement  was  en- 
tered into,  in  which  each  of  the  parties  agreed 
to  collect  all  items  in  the  form  of  check  or  draft 
in  their  respective  territories,  crediting  them  at 
par.    The  Federal  Reserve  Act  contemplated  a 
somewhat  similar  working  arrangement  as  be- 
tween the  Federal  Reserve  banks  and  their 
members.     It  is  no  discredit  to  the  principle 
to  admit  that  its  operation  in  the  United  States 
has  been  frustrated  through  the  opposition  of 
the  member  banks,  and  that  the  clause  in  the 
law  is  inoperative.    Nevertheless,  there  can  be 
no  denying  the  fact  that  far-reaching  effects 
would  follow  the  development  in  our  own  coun- 
try of  a  universal  parity  of  exchange.    In  this 

119 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

respect  and  as  a  step  toward  the  achievement 
of  this  higher  program,  the  attitude  of  the 
Mexicans  has  been  more  progressive  than  the 
disingenuous  position  taken  by  the  national 
banks  of  the  United  States. 

Another  far-reaching  measure  was  outlined 
in  the  agreement  between  the  Banco  Central 
and  its  members — viz.,  that  of  looking  after 
any  particular  bank  which  became  embarrassed. 
Provision  was  made  for  the  immediate  notifi- 
cation of  the  Banco  Central,  and  for  the  crea- 
tion of  a  fund  in  its  hands  by  the  various  mem- 
bers equaling  50  per  cent,  of  the  capital  stock 
of  the  embarrassed  member,  which  fund  was 
to  be  used  to  support  its  credit.  The  maximum 
contribution,  however,  by  any  member  bank 
was  to  be  2  per  cent,  of  its  capital  stock.  The 
total  credit  thus  assembled  in  the  Banco  Cen- 
tral was  to  be  used  in  the  redemption  at  par 
of  the  notes  of  the  involved  bank.  If  a  portion 
of  the  funds  collected  in  the  hands  of  the  Banco 
Central  were  used  by  the  member  in  the  re- 
demption of  its  own  notes,  these  notes  were  to 
be  forwarded  to  the  Banco  Central  to  be  held 
in  trust  for  the  account  of  the  other  member 
banks,  in  the  ratio  of  their  contribution  to  the 
general  fund.  For  all  of  this  assistance  the 
embarrassed  member  agreed  to  pay  12  per  cent. 

on  the  sums  advanced  and  the  costs  incurred. 

120 


THE  BANCO  REFACCIONARIO  MEXICANO 

This  provision  may  possibly  have  been  sug- 
gested by  the  experience  of  the  Canadian  banks, 
although  the  method  pursued  in  mobilizing 
the  guaranty  fund  cannot  be  said  to  approach 
the  Canadian.  The  plan  of  the  latter  is  to 
create  the  fund  against  an  emergency;  the 
Mexicans,  in  their  eagerness  to  raise  funds, 
might  only  add  to  difficulties  by  calling  for 
moneys  at  a  time  when  payment  could  but 
be  denied  through  the  pinch  of  conditions. 

The  fund  was  a  sort  of  guaranty  of  deposits, 
for  each  state  bank  assumed,  as  regarded 
every  other  member  of  the  system,  a  responsi- 
bility to  support  that  member  within  definite 
bounds.  It  was  a  recognition  of  mutuality  of 
interests  as  between  member  banks,  and  a 
further  acknowledgment  of  the  responsibility 
of  banks  to  the  public.  While  on  its  face  it 
did  not  bear  the  badge  of  being  a  guaranty 
of  deposits  law — that  it  was  in  effect.  This 
agreement  belongs  very  definitely  to  the  larger 
field  of  banking  evolution  through  which  our 
own  country  has  been  passing.  It  marks  a 
stage  in  an  evolution  which  bore  fruit  in  the 
enactment  of  guaranty  of  deposit  laws  in  five 
states  of  the  Union,  and  which  gave  us  finally 
the  great  Federal  Reserve  Act  and  the  Fed- 
eral Farm  Loan  Act. 

The  Banco  Central,  notwithstanding  it  had 
If] 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

undertaken  several  excellent  things  in  relation 
to  the  state  banks,  was  still  in  a  high  sense  not 
a  central  bank.  The  matter  of  acting  as  agent 
in  the  Federal  District  for  the  redemption  of 
the  notes  of  state  banks  was  a  primary  func- 
tion, without  which  co-operation  or  some  re- 
demption agency  all  such  notes  would  have  cir- 
culated at  a  discount  or  have  failed  totally  of 
currency  in  the  markets.  It  was  also  a  praise- 
worthy engagement  to  which  it  committed  it- 
self in  the  matter  of  discounting  the  bills  re- 
ceivable of  the  state  banks  within  definite  limits. 
The  fundamentally  weak  spot  in  the  struct- 
ure of  the  so-called  Central  Bank  came  from 
the  fact  that  there  was  no  law  requiring  the 
state  banks  to  maintain  reserves  of  any  char- 
acter with  the  Central  Bank,  nor  was  any  pro- 
vision made  whereby  the  Central  Bank  could 
protect  itself  in  the  event  of  an  unprecedented 
demand  from  its  members.  It  was  inevitable 
that  the  Banco  Central  would  expand  its 
credits  in  an  effort  to  make  dividends  for  its 
stockholders,  and  that  when  the  time  came  and 
pressure  was  exerted  for  the  extension  of  gen- 
eral credit  lines,  the  Banco  Central  would  find 
itself  hopelessly  involved,  with  no  powers  of 
expansion.  There  was  a  lack  of  elasticity  which 
cribbed  and  fixed  its  operations,  rendering  it 
helpless  in  emergencies. 


THE  BANCO  REFACCIONARIO  MEXICANO 

This  fundamental  weakness  was  all  too  evi- 
dent to  the  men  who  drafted  the  Federal  Re- 
serve Act.  They  required  member  banks  to 
maintain  certain  percentages  of  reserves  on 
deposit  with  the  Federal  Reserve  banks;  and, 
furthermore,  provision  was  made  that  these 
latter  banks,  when  they  had  reached  the  limit 
of  their  own  resources,  might  issue  notes  on 
the  basis  of  the  bills  receivable  which  member 
banks  had  rediscounted.  It  was  thus  made 
possible  at  once  for  the  Federal  Reserve  banks 
to  exercise  practically  unlimited  control  over 
member  banks,  and  also  to  be  of  all  possible 
service;  any  bank  which  kept  in  its  portfolio 
certain  classes  of  paper  might  at  all  times 
have  recourse  for  credits  in  an  almost  unlimited 
way  to  the  Federal  Reserve  bank  of  its  district. 
Nor  were  the  twelve  reserve  banks  left  standing 
alone,  each  for  itself.  They  were  vitally  re- 
lated, so  that  in  the  event  one  should  experi- 
ence undue  pressure  through  the  demands  of 
its  members,  the  Federal  Reserve  Board  in 
Washington  may  compel  any  one  or  all  of  the 
reserve  banks  to  combine  to  accomplish  any 
particular  purpose. 

It  fell  out  in  due  course  that  the  Banco 
Central — with  a  limited  capital,  with  no  definite 
quotas  of  reserves,  and  with  no  opportunity  to 
avail  itself  of  the  great  powers  derived  through 

123 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

the  issuing  of  notes  on  the  basis  of  bills  receiv- 
able— was  handicapped  from  the  first.  The 
supreme  test,  however,  had  not  come  prior 
to  the  Madero  revolution.  We  shall  have  oc- 
casion later  to  develop  some  data  with  respect 
to  the  actual  banking  operations  of  the  Banco 
Central;  at  the  moment  it  has  been  our  purpose 
to  make  clear  its  place  in  the  banking  ma- 
chinery of  the  Republic,  as  set  in  motion  by 
the  law  of  1897. 

When  the  Banco  Central  had  opened  its 
doors  for  business,  the  keystone  in  the  state 
banking  structure  had  been  placed.  We  had, 
then,  existing  side  by  side  two  large  plans: 
one,  that  developed  by  the  Banco  Nacional 
and  the  Banco  de  Londres  domiciled  in  the 
capital  and  enjoying  exclusively  the  right  to 
establish  branches  throughout  the  Republic 
and  to  circulate  their  notes  as  widely;  the  other 
that  of  the  Banco  Central  situated  in  the  capi- 
tal with  state  banks  scattered  widely  over  the 
Republic.  It  goes  without  saying  that  the 
two  systems  touched  here  and  there,  and  that 
rivalries  arose;  but,  on  the  other  hand,  it  was 
clear  that  they  were  bound  together  by  com- 
munity of  interest — that  they  would  run  or 
fall  together. 

With  these  perfected  systems  Mexico  was 
now  ready  to  launch  upon  an  unprecedented 

124 


THE  BANCO  REFACCIONARIO  MEXICANO 

development,  and  to  unfold  her  resources  in 
the  space  of  ten  years  as  they  had  not  been 
in  a  hundred — to  emerge  at  a  bound,  as  it 
were,  from  a  chaos  of  economic  and  political 
confusion  to  a  panoplied  state,  wearing  the 
guise  and  mien  of  the  twentieth  century. 


THE  TRANSITION  PERIOD 

ONE  of  the  transitory  clauses  of  the  general 
law  of  March  19,  1897,  provided  that 
banks  then  in  existence  had  the  right  to  adhere 
to  the  general  law,  reforming  their  concessions 
in  accordance  with  it,  and  by  way  of  reward 
they  were  to  take  on  the  character  of  first 
banks  in  their  particular  states.  It  will  be 
recalled  that  great  advantages  accrued  to  such 
first  banks,  through  tax  exemptions,  etc.  And 
so  it  came  about  that  nearly  all  the  banking 
institutions  of  the  country  availed  themselves 
of  the  opportunity  extended  by  the  Minister 
of  Hacienda.  Six  banks  submitted  at  once  to 
the  reform.  They  were  the  Banco  Mercantil 
and  the  Banco  Yucateco,  of  Yucatan;  Banco 
de  Durango;  Banco  Minero,  and  the  Banco 
Comercial,  of  Chihuahua;  and  the  Banco  de 
Zacatecas. 

They  were  each  classified  as  first  banks. 
And  practically  the  only  differences  in  the  re- 
formed charters  of  these  institutions  lay  in 

126 


THE  TRANSITION  PERIOD 

the  sums  agreed  to  be  paid  to  the  government's 
inter venors.  These  employees  received  on  an 
average  about  P500  per  quarter.  Other  slight 
differences,  too,  there  were.  For  example, 
in  the  provision  having  to  do  with  branches, 
the  Banco  Minero  was  permitted  to  establish 
them  in  four  states — Chihuahua,  Coahuila, 
Nuevo  Leon,  and  Sonora;  while  the  Banco 
Comercial,  of  Chihuahua,  was  limited  to 
establishing  branches  in  Chihuahua  and  Coa- 
huila. 

At  the  height  of  things  three  brand-new 
concessions  were  granted  for  banks  of  emis- 
sion. They  were  to  be  located  in  Sonora, 
Sinaloa,  and  Vera  Cruz. 

The  Banco  de  Nuevo  Leon,  located  at  Mon- 
terey, was  one  of  the  institutions  which  held 
out  against  the  cancelation  of  its  charter.  It 
did,  indeed,  permit  the  reform  of  its  conces- 
sion, but  it  would  not  abandon  the  right  it 
had  been  granted  originally  to  issue  three  pesos 
of  notes  for  one  peso  of  cash  in  vault.  It  will 
be  recalled  that  the  general  law  provided  that 
only  two  pesos  in  notes  might  be  issued  against 
one  peso  of  cash. 

It  was  only  on  September  30,  1897,  that 
Limantour  succeeded  in  closing  an  arrange- 
ment with  this  bank.  Its  original  concession 
was  dated  August  5,  1891,  and  it  had  been  a 

127 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

fairly  liberal  one;  hence  the  bank  was  loath 
to  abandon  it.  It  was  able,  indeed,  through 
holding  out,  to  secure  from  Limantour  nearly 
all  the  rights  it  had  originally  enjoyed.  For 
example,  it  was  permitted  to  establish  branches 
and  agencies  in  Nuevo  Leon,  Coahuila,  Tamau- 
lipas,  and  Durango,  but  not  within  other 
states  short  of  complying  with  the  general  law 
which  compelled  an  increase  of  the  capital 
of  the  institution  by  P100,000  for  each  new 
branch. 

The  bank  agreed  to  adhere  to  the  general  law, 
save  in  certain  specified  cases,  notably  in  the 
matter  of  volume  of  notes  to  be  circulated.  It 
also  agreed  to  secure  its  circulation  by  a  deposit 
in  the  Treasury  of  bonds  of  the  public  debt 
in  a  total  of  one-third  the  paid  capital.  It 
further  agreed  not  to  issue  notes  to  exceed 
three  times  its  capital  stock  actually  paid  up. 
The  life  of  its  charter  was  extended  to  thirty 
years.  No  officers  of  federal  or  state  govern- 
ments might  serve  in  any  capacity  as  officials 
of  the  bank;  the  bank  might  transfer  its  con- 
cession on  the  approval  of  the  Minister  of 
Hacienda;  it  was  compelled  to  submit  to  the 
federal  courts,  and  it  was  given  five  years  in 
which  to  retire  all  notes  issued  for  sums  less 
than  P5.1 


1  Memoria  de  Hacienda,  1897-98,  pp.  297-300. 

128 


THE  TRANSITION  PERIOD 

The  details  of  the  reformation  of  the  usual 
concession  were  simple  enough.  The  bank 
merely  renounced  its  original  rights,  where 
there  were  conflicts.  Take  for  illustration  the 
Banco  de  Zacatecas.  Its  concession  was  dated 
March  3,  1891,  and  on  November  12,  1897,  it 
agreed  to  adhere  strictly  to  the  general  law  of 
March  19, 1897.  Its  reformed  concession  mere- 
ly set  out  the  large  heads  which  have  to  do  with 
banks  of  emission.  Its  capital  was  fixed  at 
P600,000,  with  authority  to  increase  it  on  the 
consent  of  the  Minister  of  Hacienda.  Its 
domicile  was  Zacatecas.  It  might  also  estab- 
lish branches  in  Jalisco  and  Durango  by  in- 
creasing its  capital  PlOO,000  for  each  branch. 
It  took  on  the  character  of  first  bank  in  the 
state  of  Zacatecas.  Its  concession  was  ex- 
tended to  thirty  years  from  March  19,  1897, 
and  for  twenty-five  years  it  was  to  enjoy  all 
tax  exemptions  under  stipulations  of  Articles 
121  and  127.  The  bank  agreed  to  prepare  a 
new  set  of  by-laws  in  conformity  with  the  gen- 
eral law,  and  said  by-laws  should  contain  the 
present  reformed  contract.  And  this  bank,  too, 
was  to  have  five  years  in  which  to  retire  its 
notes  issued  in  smaller  denominations  than  P5. 
But  here,  in  contradistinction  to  the  exaction 
laid  on  the  Banco  de  Nuevo  Leon,  the  deposits 
which  the  Banco  de  Zacatecas  had  made  with 

129 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

the  Treasury  to  secure  the  redemption  of  its 
notes  were  to  be  returned  to  the  bank,  when 
Congress  had  approved  the  reformed  con- 
tract.1 

Thus,  with  only  trifling  exceptions  as  to  de- 
tails, Limantour  at  last  succeeded  in  bringing 
the  banks  of  the  country  into  a  degree  of  uni- 
formity which  had  appeared  impossible  of  at- 
tainment. Before  the  end  of  1897  ten  banks 
were  in  operation.  They  were  the  Banco  Na- 
cional,  the  Banco  de  Londres  y  Mexico,  the 
Banco  Internacional  e  Hipotecario,  Banco 
Minero  de  Chihuahua,  Banco  Comercial  de 
Chihuahua,  Banco  Yucateco,  Banco  Mercantil 
de  Yucatan,  Banco  de  Durango,  Banco  de 
Nuevo  Leon,  and  Banco  de  Zacatecas. 

It  is  to  be  noted  that  Limantour's  pet  bank, 
the  Caja  de  Ahorros,  is  not  listed.  It  will  be 
recalled  that  it  opened  its  doors  May  5,  1895, 
with  a  very  small  paid  capital — only  P3,250 
had  been  subscribed.  At  the  end  of  three 
years  the  capital  of  this  institution  had  grown 
to  P86,792,  with  2,065  shares,  giving  them  a 
value  of  P41 — par  P25.  Originally  only  share- 
holders could  borrow  of  the  Caja,  but  the  by- 
laws were  now  so  reformed  that  any  employee 
might  have  access  to  the  Caja's  credits.  And 
it  was  now  Limantour's  purpose  to  extend  the 

1  Memoria  de  Hacienda,  1897-98,  pp.  305-306. 

130 


THE  TRANSITION  PERIOD 

operations  of  his  bank  to  the  employees  of 
other  departments  of  the  government.1 

The  following  year  two  dividends  of  P3.50 
and  P3.25,  respectively,  were  paid  on  the  stock 
—equivalent  to  more  than  25  per  cent.  The 
Caja  had  loaned  P221,184  and  had  collected 
P192,450,  and  showed  deposits  of  P91,602.2 

The  government's  contributions  to  the  assets 
of  the  Caja  accounted  in  large  part  for  its 
earnings.  These  contributions  came  through 
fines,  etc.  The  Caja  was  destined  to  continue 
yet  awhile  in  flourishing  condition  ere  it  fell 
on  evil  days.  It  is  chiefly  of  interest  because 
of  its  sponsor  and  because  of  the  really  progres- 
sive step  taken  at  a  date  when  institutions  of 
this  type  were  unknown  in  America. 

Perhaps  at  this  juncture  a  brief  resume  of 
the  banking  situation  at  the  moment  of  the 
enactment  of  the  law  of  1897  may  not  be  amiss. 
Of  course,  data  are  not  available  covering  the 
operations  of  all  banks  in  the  Republic — some 
of  them  published  no  statements.  However, 
the  following  table  will  indicate  that  already 
banks  had  come  to  assume  no  mean  place  in  the 
economic  structure  of  the  state.  A  consoli- 
dated statement  as  of  June  30,  1897,  follows: 3 


1  Memoria  de  Hacienda,  1897-98,  pp.  357-358. 

2  Ibid.,  1898-99,  p.  XIII. 

3  Boletin  de  Estadistica  Fiscal,  No.  225,  pp.  105,  108. 
10  131 


PRESENT  AND   PAST   BANKING   IN   MEXICO 

RESOURCES 

Capital  unpaid P14,440,000 

Cash 46,692,929 

Bills  receivable 37,867,741 

Mortgage  loans 3,420,406 

Secured  loans 13,685,998 

Other  loans 1,597,183 

Current  accounts  receivable 27,643,178 

Furniture 1,398,672 

Total 146,746,108 

LIABILITIES 

Capital  paid P41,050,000 

Notes  in  circulation 42,240,491 

Mortgage  bonds  in  circulation 2,551,700 

Demand  deposits 1,116,787 

Other  deposits 2,110,349 

Current  accounts  payable 51,365,918 

Reserve  and  emergency  funds 6,310,863 

Total 146,746,108 

Mexico  was  now  to  experience  a  phenomenal 
growth  in  banking  assets.  With  totals  stand- 
ing in  1896  at  Pl35,284,120,  in  the  space  of 
three  years  those  figures  were  increased  by 
more  than  PlOO,000,000.  During  this  period 
the  Banco  Nacional,  from  controlling  more  than 
half  the  totals,  dropped  a  little  under  it. 

From  January,  1897,  to  January  1,  1900, 
the  cash  holdings  in  the  banks  increased  in 

132 


THE  TRANSITION  PERIOD 

round  figures  from  P44,000,000  to  P54,000,- 
000;  bills  receivable  from  P37,500,000  to 
P83,000,000;  notes  in  circulation  from  P38,- 
500,000  to  P63,500,000;  and  secured  loans 
from  P13,000,000  to  PSl.TSCMHH).1 

A  study  of  the  following  resume  develops  first 
of  all  that  the  paid-in  capital  of  the  banks  of 
Mexico  was  practically  doubled  in  five  years,  ris- 
ing from  P41,050,000  to  P78,300,000.  The  note 
circulation  had  increased  a  little  more  than 
P20,000,000,  totaling  in  1901  P63,629,245. 
There  had  been  a  marked  increase,  too,  in 
mortgage  bonds  in  circulation,  this  total  having 
risen  from  P2,500,000  to  more  than  P9,000,000 
— wholly  due  to  the  expansions  of  the  Banco 
Internacional  e  Hipotecario.  Current  accounts 
payable,  including  deposits,  showed  an  ex- 
pansion of  P35,500,000  rising  to  P86,970,387. 
Surplus  accounts  rose  from  P6,000,000  almost 
to  P14,000,000. 

On  the  resource  side  of  the  ledger  the  cash  in 
vault  mounted  from  P46,692,929  to  P62,091,571, 
while  bills  receivable  grew  from  P37,867,741 
to  P91, 865,637.  Secured  notes  increased  from 
P13,685,998  to  P36,108,902;  current  accounts 
receivable  from  P27,643,178  to  P50,496,243. 

A  comparative  study  of  the  development  by 
years  is  shown  in  the  following  resume: 

1  Memoria  de  las  Instiiuciones  de  Cridito,  for  1897-98-99,  p.  141. 


PRESENT  AND  PAST  BANKING   IN  MEXICO 


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O  to  CO  CO  GO 

*** 

UP 

•<*  CO  CO  O  >O 

1—t   I-H   f—l   I—  1 

u 

rH  GO  «i  OS  OO 

•«*  •<*  »o  co  i> 

i 

t^  00  OS  O  r-t 
OS  OS  CS  O  O 
OO  OO  OO  OS  OS 

1 

t-  00  OS  O  rH 

OS  CS  CS  O  O 
00  00  00  OS  OS 

(3 

a 

o  o  o  o  o 

GO  CO  CO  CO  GO 

o   o   c>   w>   <u 

a  c  c  c  c 

33333 

o  o  o  o  o 

GO  CO  GO  CO  CO 

o  a  ft  a  a 

33333 

t-s  i-s  h-a  r-,  h, 

"o 

l-« 

134 


THE  TRANSITION  PERIOD 

This  exhibition  surely  reflected  a  healthy 
condition.  While  there  had  been  a  material 
expansion  in  the  circulation  of  notes,  this 
phenomenon  had  been  accompanied  by  great 
development  in  the  commercial  and  industrial 
life  of  the  people;  and,  furthermore,  it  must  be 
borne  in  mind  that  for  the  first  time  in  the  his- 
tory of  Mexico  an  adequate  volume  of  money 
was  being  poured  into  the  channels  of  trade. 
It  required  time  and  circumspection  to  handle 
the  financial  situation  in  that  raw,  undeveloped 
country;  to  adjust  to  a  nicety  the  equilibriums; 
and  to  recognize  when  the  point  of  currency 
saturation  was  being  reached  in  the  economic 
dispensations  of  the  people. 

The  year  1898  found  sixteen  banks  in  opera- 
tion in  the  Republic.  Two  banks  were  added 
the  following  year,  two  in  1900,  and  four  in 
1901.  In  order  to  gain  an  idea  of  the  rapid 
progress  made  during  the  five  years  immedi- 
ately following  the  enactment  of  the  general 
banking  law,  the  following  table  is  appended.1 

The  detailed  statement  of  the  banks  as  of 
June  30,  1901,  brings  out  very  sharply  the  pre- 
ponderant position  of  the  Banco  Nacional. 
In  1897  its  paid  capital  had  been  but  P8,000,000 ; 
in  1901  it  reached  P20,000,000.  Its  circulation 
the  first  year  mentioned  had  been 

1  Boktin  de  Estadistica  Fiscal,  No.  225,  pp.  101-102. 

135 


PRESENT  AND  PAST  BANKING   IN  MEXICO 


rMi-Hof        o    o  »H 


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»«»»O»«i-i>O 


oo  oo  o  «o  os  oo 


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wsooeo 


l>eO        r-or 


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8OCOOOOOOOOOOOOCOOOOOOO 
oooooooooooowwowoyyooo 
ccdacaacicccflcccicccccc 


136 


O     f-H 

^^ 


THE  TRANSITION  PERIOD 


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HHS^^-O-OnoTSTS-O-^O 


nc888888888888 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

in  1901  it  had  actually  declined  by  more  than 
P500,000.  There  had  been  an  increase  in  the 
current  accounts  payable,  the  totals  rising 
from  P34,987,985  to  P42,559,084,  which  marked 
a  gain  in  deposits.  Its  cash  in  vault,  it  is  true, 
had  fallen  approximately  P3,400,000,  but  there 
had  been  an  increase  of  a  little  more  than 
PlO,000,000  in  the  portfolio,  with  a  similar 
expansion  in  the  secured  notes;  and  a  trifling 
growth  in  the  current  accounts  receivable  of 
P2,000,000. 

An  analysis  of  the  situation  carried  a  little 
farther  discloses  that  of  the  total  cash  or  specie 
resources  of  the  banks  in  1901,  the  Banco 
Nacional  carried  P25,755,009  out  of  a  total  of 
P56,l  18,669.  In  its  portfolio  there  existed  bills 
receivable  totaling  P28,327,362,  in  addition  to 
secured  notes  aggregating  P18,249,051.  There 
were  also  current  accounts  receivable  approxi- 
mating P18,220,483.  The  latter  account  was 
offset  on  the  ledger  by  a  total  of  P42,559,084, 
or  a  difference  against  the  bank  of  approxi- 
mately P24,000,000,  which  sum  largely  con- 
stituted the  deposits  of  the  institution. 

To  the  student  of  banking  familiar  with 
American  principles,  it  is  not  easy  to  penetrate 
the  statements  of  the  Mexican  banks,  on  ac- 
count of  the  mystery  which  hangs  over  the 
accounts  entitled  current  creditor  and  current 

138 


THE  TRANSITION  PERIOD 

debtor.  This  system  of  classification  is  almost 
exclusively  Mexican,  and  came  to  be  so  pre- 
dominantly the  method  employed  as  between 
bank  and  client  that  perhaps  a  few  words  may 
be  necessary  to  clarify  the  situation. 

If  we  take  by  way  of  illustration  the  data 
supplied  in  the  table  above,  showing  current 
accounts  receivable  of  the  Banco  Nacional  in 
1901  at  P18,220,483,  and  current  accounts  pay- 
able of  the  same  date  at  P42,559,084,  we  shall 
find  that  in  the  first  instance  the  current 
accounts  receivable  means  that  the  Banco 
Nacional  has  made  advances  to  its  clients  in 
that  total,  based  on  the  deposit  of  acceptable 
collaterals  in  the  form  of  notes  or  securities. 
On  the  other  side  we  have  the  total  commit- 
ments which  have  been  made  by  the  bank  to 
clients  in  the  form  of  advances,  plus  all  de- 
posits. The  methods  pursued  by  the  bank  in 
handling  these  accounts  is  to  carry  deposited 
notes  to  maturity  and  to  collect  them;  failing 
in  this,  the  amount  advanced  against  such 
matured  paper  is  charged  to  the  account  of 
the  client  to  whom  advances  have  been  made. 
This  results  in  an  anomalous  bookkeeping 
situation.  In  other  words,  entries  are  made  on 
both  sides  of  the  ledger,  which,  so  far  as  the 
individual  is  concerned,  ought  legitimately  to 
wash  or  liquidate  one  another. 

139 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

This  clouded  situation  became  so  serious 
that  in  1908  Limantour  undertook  its  clari- 
fication, explaining  that  the  totals  carried  in 
these  two  accounts  in  the  consolidated  state- 
ment for  that  year — which  properly  should 
nearly  have  balanced  each  other — amounted 
to  P220,000,000.  This  method  of  bookkeeping 
is,  to  say  the  least,  confusing  and  ought  to 
have  been  abandoned  by  the  banks.  But  the 
system,  allied  with  the  earlier  methods  of  pro- 
cedure inherited  from  the  Spanish  regime, 
would  be  difficult  to  eradicate.  The  serious 
point  involved  was  the  inability  to  uncover 
true  demand  deposits. 

A  more  or  less  analogous  situation  has  had 
to  be  dealt  with  in  the  United  States.  The  re- 
ciprocal accounts  carried  by  banks  with  one 
another,  covering  their  current  transactions — 
a  situation  complicated  by  virtue  of  the  reserve 
law  requirements — in  its  most  aggravated  state 
developed  into  the  so-called  "pyramiding"  of 
accounts.  Happily,  the  enactment  of  the  Fed- 
eral Reserve  Act  has  cut  the  ground  from 
under  this  fictitious  structure,  thus  removing 
one  of  the  erstwhile  dangers  in  our  so-called 
reserve  situation.  There  was,  in  truth,  much 
more  artificiality  and  peril  in  the  scheme  pur- 
sued by  the  banks  of  the  United  States  than  in 
the  scheme  of  current  debtor  and  creditor  ac- 

140 


THE  TRANSITION  PERIOD 

counts  of  the  Mexican  banks,  because  of  the 
different  character  of  these  accounts.  With 
American  banks  they  were  demand  accounts, 
but,  strictly  speaking,  they  were  not  so  with 
the  Mexican  institutions.  The  advances  made 
by  Mexican  banks  to  their  clients  were  largely 
of  the  type  we  have  attempted  to  describe, 
and  extended  over  intervals  of  time  ranging 
from  six  months  to  a  year,  depending  on 
the  nature  of  the  collaterals  assigned  for  their 
protection. 

The  general  character  of  the  paper  in  the 
portfolios  of  Mexican  institutions  varied  widely 
from  that  to  which  the  banks  of  the  United 
States  are  accustomed.  Discounting  opera- 
tions, so  common  in  the  United  States  and  in 
Europe,  were  a  thing  almost  unknown  to  Mexi- 
can bankers.  In  fact,  as  M.  Favre1  has  pointed 
out,  it  was  regarded  by  the  Mexican  client  as 
a  reflection  on  his  uprightness  to  suggest  the 
discounting  of  a  piece  of  his  paper.  In  the 
first  place,  the  Mexican  law  respecting  dis- 
counts required  that  the  note  should  bear  two 
signatures  and  that  it  should  be  paid  in  a  space 
not  exceeding  six  months.  As  a  matter  of  fact, 
most  of  the  advances  of  banks  were  for  longer 
periods. 

On  the  face  of  it,  it  would  appear  that  the 

1  Favre,  Lea  Banques  au  Mexiquc,  p.  44. 

141 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

banks  of  emission  which  put  in  circulation  a 
considerable  volume  of  notes  based  on  the  cash 
reserve  of,  let  us  say,  50  per  cent.,  would  run 
great  risks  in  depending  on  liquidations,  which 
too  often  were  indeterminate  or  extended  over 
too  long  terms.  Undoubtedly  the  ultimate 
safety  of  the  system  lay  in  the  development 
of  a  large  reserve  bank,  which  could  be  depend- 
ed upon  absolutely  to  support  its  members, 
through  rediscounting  or  through  the  protec- 
tion of  the  outstanding  circulation. 

The  note  circulation  of  the  banks  in  Mexico 
up  to  the  crash  had  been  in  essence  an  asset 
currency,  based  on  the  resources  of  the  banks 
and  supported  by  large  metallic  reserves.  In 
this  it  differed  essentially  from  the  asset  cur- 
rency of  the  Federal  Reserve  banks  now  so 
extensively  circulated  in  the  United  States. 
Federal  Reserve  notes — not  the  Federal  Re- 
serve bank-notes  which  are  based  on  govern- 
ment bonds — are  issued  against  commercial 
paper,  running  for  short  terms,  not  exceeding 
ninety  days;  and  are,  therefore,  in  the  highest 
sense  an  emergency  currency  to  be  expanded 
or  contracted  as  the  conditions  demand.  The 
theory  of  Mexican  currency  issues  was  similar 
in  principle.  There  would  be  an  outflow  of 
the  notes  of  the  banks  as  demand  arose,  and 
when  that  demand  had  been  satisfied,  the  re- 

142 


THE  TRANSITION  PERIOD 

verse  action  would  set  in,  and  presently  the 
bills  would  be  returned  to  the  vaults  whence 
they  had  been  issued.  In  practice  the  history 
of  currency  circulation  in  Mexico  shows  but 
insignificant  fluctuations.  There  did  not  de- 
velop in  that  country  great  seasonal  fluctua- 
tions, such  as  have  been  [experienced  in  the 
United  States,  as,  for  example,  at  the  har- 
vesting time  of  wheat  and  the  marketing  of 
cotton.  In  order  to  gain  a  more  graphic  idea 
of  the  trend  of  the  currency  movement  in 
Mexico,  the  table  on  page  144  may  prove  in- 
structive. 

The  table  exhibits  a  fair  degree  of  uniformity 
in  its  angle  of  development.  It  was  only  when 
troublous  times  arose  that  fluctuations  devel- 
oped— fluctuations  quite  without  the  pale  of 
legitimacy.  Attention  may  be  directed  to  the 
heavy  shrinkage  in  the  outstanding  notes  of 
the  Banco  Nacional  after  1913  and  the  increase 
shown  in  the  summaries  of  the  other  banks 
of  emission.  The  first  effect  came  through  the 
ability  of  the  Banco  Nacional  to  purchase  its 
notes  during  the  depreciated  currency  period 
under  Carranza;  while  the  increase  shown  was 
due  to  Huerta's  measures,  which  we  shall  dis- 
cuss in  a  later  chapter. 


143 


PRESENT  AND  PAST  BANKING   IN  MEXICO 


CURRENCY  TABLE,  1896-1918 » 

(In  Pesos.) 


Issued  by 
Banco 
Nacional 

Other  Banks 

Total 
Outstanding 

December  31,  1896.  . 

37,967,105 

June  30,  1897  

23,872,226 

18,368,265 

42,340,491 

December  31,  1897.  . 

44,808,253 

June  30,  1898  

24,107,737 

28,702,668 

52,810,40.5 

December  31,  1898.  . 

54,375,769 

June  30,  1899  

23,211,265 

34,997,076 

58,208,341 

December  31,  1899.  . 

63,196,833 

June  30,  1900  

24,719,447 

41,218,170 

65,937,617 

December  31,  1900.  . 

64,012,465 

June  30,  1901  

23,325,827 

40,303,418 

63,629,245 

December  31,  1901  .  . 

71,257,627 

June  30,  1902  

27,581,778 

49,885,210 

77,466,988 

December  31,  1902.  . 

86,145,227 

June  30,  1903  

28,378,029 

59,655,511 

88,033,540 

June  30,  1904  

23,455,245 

59,533,976 

82,989,221 

June  30,  1905  

26,439,982 

63,014,274 

89,454,256 

June  30,  1906  

31,608,695 

65,526^282 

97,134,977 

June  30,  1907  

37,566,398 

60,904,130 

98,470,528 

June  30,  1908  

39,479,934 

52,773,360 

92,253,294 

June  30,  1909  

40,214,874 

52,006,603 

92,221,477 

June  30,  1910  

52,199,401 

59,961,262 

112,160,663 

June  30,  1911  

54,840,995 

61,813,507 

116,654,502 

July  31,  1912  

58,097,233 

65,860,349 

123,957,582 

December  31,  1912.  . 
June  30,  1913  

64,128,980 
67,330,579 

67,613,610 
62,897,680 

131,742,590 
130,228,259 

February  28,  1918.  .  . 
September  30,  1918.  . 

42,232,324 
38,380,038 

89,334,650 
85,348,782 

131,566,974 

123,728,820 

1  Bolettn  de  Estadistica  Fiscal,  Fiscal  Year  1902-03,  No.  255,  pp.  205, 
214-216;  Boletin  de  Estadistica  Fiscal,  Fiscal  Year  1910-11,  No.  366, 
pp.  263,  281;  Mexican  Year-Book,  1914,  p.  22;  Memorandum  supplied 
by  Department  of  Banking  under  Hacienda. 


144 


XI 

ADOPTION   OF   THE  GOLD   STANDARD 

fTlHE  early  years  of  the  twentieth  century 
J.  witnessed  the  continued  progress  of  banks 
in  Mexico — a  progress  marching  pari  passu 
with  the  general  economic  unfolding  of  the 
country.  But  they  were  not  happy  years  in 
the  highest  sense,  for  drought  afflicted  the  coun- 
try and  the  low  price  of  silver  seriously  ham- 
pered the  mining  industry.  Indeed,  it  may  be 
said  that  to  some  extent  all  industry  and  com- 
merce of  the  country  felt  the  disturbances 
wrought  through  the  fluctuations  of  the  sil- 
ver standard,  to  which  Mexico  was  dedicated. 
This  was  disclosed  most  forcibly  in  the  ex- 
change rates,  a  concomitant  of  unsettled  con- 
ditions. And  it  may  well  be  supposed  that 
banks  were  vitally  involved  when  the  value 
of  the  peso  was  sliding  up  and  down  the  scale 
like  mercury  in  a  thermometer.  What  should 
be  done? 

Limantour  had  early  faced    the    problem, 
and  appointed  a  committee  of  forty-four  men 

145 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

to  study  the  silver  question  with  a  view  to 
making  recommendations.  This  was  during  the 
fiscal  year  1 902-03.  *  And  on  his  committee 
were  the  best  names  in  Mexican  finance.  A 
smaller  group  was  chosen  to  co-operate  with 
an  international  committee  in  the  larger  study 
of  silver  in  its  international  relation. 

The  silver  problem  confronting  Mexico  was 
not  hers  exclusively — it  affected  all  lands  whose 
imports  reached  countries  operating  on  a  silver 
basis;  if,  indeed,  it  did  not  affect  all  countries 
whatsoever.  Several  commissions  were  ap- 
pointed to  study  the  problems,  for  there  were 
indeed  grave  problems  to  be  met.  When  one 
considers  that  more  than  $500,000,000  were 
involved  annually  in  imports  into  silver- 
standard  countries,  it  can  but  be  apparent 
that  gold-standard  states  seeking  to  establish 
markets  in  silver  countries  were  deeply  con- 
cerned. 

The  commissioners  appointed  by  Mexico, 
the  United  States,  China,  and  other  countries 
succeeded  after  the  fashion  of  most  commis- 
sions. They  could  reach  no  common  under- 
standing. But  in  a  report  published  on  Inter- 
national Exchange  the  following  resolution 
adopted  in  London  appeared  to  express  the 
sense  of  the  leading  powers  concerned: 

1  Memoria  de  Hacienda,  1902-03,  pp.  175-179. 

146 


ADOPTION  OF  THE  GOLD  STANDARD 

That  the  adoption  in  silver-using  countries  of  the 
gold  standard  on  the  basis  of  a  silver  coin  of  unlimited 
legal  tender,  but  with  a  fixed  gold  value,  would  greatly 
promote  the  development  of  those  countries,  and  stimu- 
late the  trade  between  those  countries  and  countries 
already  possessing  the  gold  standard,  besides  enlarging 
the  investment  opportunities  of  the  world. 

It  is  obvious  that  the  gold-standard  countries 
had  completely  dominated  the  conferences. 
It  was,  in  fact,  the  power  of  the  creditor  nations 
which  here  came  into  play.  Limantour  scarcely 
needed  encouragement.  In  his  view,  by  the 
fall  of  1904  the  time  had  come  for  action,  and 
he  was  determined  to  enact  into  legislation  a 
measure  which  should  establish  for  Mexico  a 
gold  standard,  so  devised  as  to  keep  silver  in 
circulation  without  impairing  the  legal  ratio 
to  be  established  as  between  the  precious 
metals.  These  ends  were  to  be  gained  by 
closing  the  mints  to  the  free  coinage  of  silver; 
through  preventing  the  reimportation  of  Mexi- 
can pesos;  by  establishing  a  ratio  between  gold 
and  silver  based  on  the  average  gold  price  of 
silver  during  the  past  ten  years;  and  by  defer- 
ring the  coinage  of  gold  until  the  new  silver  corns 
should  have  attained  a  parity  with  that  metal; 
and  when  in  the  opinion  of  the  government  the 
appearance  of  gold  in  the  circulation  would  not 
upset  the  established  parity  between  the  metals. 

11  147 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

On  November  18, 1904,  Limantour  presented 
his  plans  to  Congress,  and  on  December  9th  a 
law  was  enacted  declaring  that  the  existing 
silver  peso,  containing  24.4391  grams  of  pure 
silver  and  2.6342  grams  of  copper,  should  con- 
tinue to  be  legal  tender,  and  that  it  should  have 
a  value  equivalent  to  75  centigrams  of  pure 
gold.  It  was  further  provided  that  the  issue 
of  specie  of  all  sorts  was  reserved  to  the  Chief 
Executive,  who  was  also  authorized  to  forbid 
the  reimportation  of  Mexican  pesos.  Other 
items  in  the  law  provided  for  a  continuation  of 
the  coinage  of  the  old  Mexican  peso  for  export 
purposes,  and  to  permit  for  a  time  the  circu- 
lation of  gold  coin  of  other  countries  within  the 
Republic. 

One  of  the  important  measures  enacted  in 
connection  with  this  law  was  that  providing 
for  the  maintenance  of  the  stability  of  exchange, 
a  function  confided  to  a  commission  known  as 
Comision  de  Cambios  y  Moneda  (Commission 
on  Exchange  and  Money).  It  was  to  have  a 
special  fund  to  be  used  in  the  stabilizing  proc- 
esses, for  the  flow  of  commerce  and  capital  is 
ever  uncertain  in  its  tides. 

On  March  25,  1905,  the  gold  standard  was 
put  into  operation.  On  account  of  the  fact 
that  the  gold  price  of  silver  was  still  below  the 

legal  parity  established,  it  was  provided  by 

us 


ADOPTION  OF  THE  GOLD  STANDARD 

law  that  new  silver  money  could  be  exchanged 
for  gold  only  at  the  legal  rate.  The  applica- 
tion of  this  rule,  however,  ceased  to  be  obliga- 
tory when  the  price  of  silver  rose  above  the  legal 
parity. 

In  April  the  Comision  de  Cambios  y  Moneda 
was  created,  and  the  Banco  Nacional  advanced 
P10,000,000  as  a  fund  for  the  purpose  of  sup- 
porting the  exchange  of  the  country  through 
the  familiar  operation  of  buying  or  selling  gold 
drafts,  according  to  the  state  of  the  market. 

But  the  great  problem  of  establishing  a  legal 
parity  between  gold  and  silver,  on  the  basis 
fixed,  was  largely  resolved  through  the  opera- 
tion of  natural  laws  and  not  through  the  ac- 
tivity of  the  Commission.  The  times  were 
most  propitious  for  the  experiment.  It  is  doubt- 
ful whether  it  would  have  been  possible,  short 
of  great  confusion  and  economic  distress,  for 
the  gold  standard  to  have  been  made  effective 
in  Mexico,  had  not  silver  continued  to  rise  in 
price  in  the  markets  of  the  world. 

The  transition  from  a  silver  to  a  gold  basis 
was  thus  apparently  rendered  easy.  The  price 
of  an  ounce  of  silver  in  1905  rose  on  the  London 
market  to  27  13-16  pence,  and  during  the  fol- 
lowing year  to  33  1-8  pence,  completely  shift- 
ing the  burden  of  the  Mexican  problem,  so 
that  it  came  to  be  no  longer  a  question  of 

149 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

bringing  silver  up  to  a  parity  with  gold,  but 
a  problem  of  keeping  silver  down  to  a  parity.1 
The  problem  of  the  Diaz  government  in  1905 
had  been  at  first  to  encourage  the  importation 
of  gold,  with  a  view  to  bringing  the  banks  to 
substitute  it  for  silver  in  their  reserves,  but  the 
natural  flow  of  gold  into  Mexico  in  payment 
for  silver  developed  to  flood  proportions.  By 
October,  1906,  over  a  period  of  sixteen  months 
silver  had  been  exported  in  a  total  of  P55,608,- 
823,  and  gold  had  been  coined  in  the  sum  of 
P51,606,500.2 

On  account  of  the  great  increase  of  gold 
stocks  held  by  the  banks,  Senor  Limantour, 
through  a  circular  dated  March  1,  1906,  re- 
quired that  in  future  in  their  monthly  state- 
ments the  banks  should  set  out  gold  and  silver 
holdings,respectively,a  thing  not  done  hitherto.3 
By  the  fall  of  1906  gold  importations  had 
reached  such  volume,  and  silver  exportations  in 
response  had  so  far  depleted  the  circulating 
media  of  the  country,  that  a  decree  was  issued, 
laying  a  10-per-cent.  tax  on  all  exportations  of 
silver  not  replaced  by  similar  quotas  of  gold 
— a  scheme  later  to  be  invoked  by  Huerta  and 
rendered  more  drastic  still  by  Carranza 

1  Conant,  Banking  System  of  Mexico,  p.  71. 

2  Financial  Documents,  December,  1906,  p.  7. 

3  Jenaro  Garcia  Nunez,  Leyes  sobre  Instituciones  de  CrSdito,  Mexico, 
1913,  pp.  165-166. 

150 


ADOPTION  OF  THE  GOLD  STANDARD 

By  August  28, 1906,  the  gold  stocks  had  been 
so  heavily  increased  in  the  vaults  of  the  banks 
that  a  new  order  emanated  from  the  Hacienda, 
compelling  the  banks  to  withhold  reckoning 
in  their  reserves  old  gold  coins.  This  rule, 
of  course,  had  the  direct  effect  of  compelling 
the  banks  to  ship  such  gold  for  reminting; 
but  it  illustrates  conclusively  that  the  govern- 
ment already  felt  itself  so  strongly  gold- 
intrenched  that  it  might  resort  to  such  sum- 
mary measure.1 

While  the  shift  from  silver  to  gold  standard 
had  been  taking  place,  other  matters  of  con- 
cern to  banks  had  been  transpiring.  It  early 
developed  that  there  were  hidden  dangers  in 
the  method  adopted  by  banks  in  handling 
reciprocal  accounts — creditor  and  debtor.  And 
Limantour  was  not  slow  to  call  the  banks 
to  account.  The  gold-standard  law  became 
operative  March  25,  1905;  and  scarcely  were 
things  settling  on  this  basis  when  Limantour 
issued  an  order  (May  12th)  to  banks  requir- 
ing them  to  maintain  a  reserve  of  50  per 
cent,  against  interest-bearing  accounts.  He 
characterized  such  accounts  as  similar  to  out- 
standing notes.2 

1  Jenaro  Garcia  Nufiez,  Leyes  sobre  Instiluciones  de  Crgdito,  Mexico, 
1913,  p.  168. 

2  Memoria  de  Hacienda,  1905-06,  p.  200. 

151 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

As  may  well  be  supposed,  the  state  banks 
without  exception  rose  up  in  arms  over  the 
ruling,  and  their  representatives  gathered  at 
once  in  the  capital  to  discuss  the  situation. 
On  May  24th,  a  memorial  signed  by  these 
representatives  was  presented  to  Limantour.1 
They  declared  that  grave  injuries  were  about 
to  be  sustained;  that  current  accounts  would  be 
set  topsy-turvy;  that  private  banks,  through 
their  freedom  from  governmental  inspection, 
would  get  the  business;  that,  in  short,  a  panic 
would  ensue.  The  bankers  took  the  erroneous 
position  that  deposits  at  interest  were  to  be 
considered  as  loaned;  hence  reserves  were  not 
required;  at  least,  not  in  excess  of  10  per  cent., 
which  private  banks  were  supposed  to  main- 
tain. It  was  reiterated  that  an  enforcement 
of  the  order  would  entail  heavy  liquidations 
of  credit  lines;  indeed,  to  such  an  extent  that 
securities  would  be  thrown  on  the  market  in 
sufficient  volume  to  glut  it.  The  memorialists 
figured  that  if  the  rule  were  applied  to  the 
Banco  Nacional  and  the  Banco  de  Londres 
P90,000,000  in  specie  would  be  required  by 
them  alone  to  make  up  the  balances.  It  was 
estimated  that  deposits  and  accounts  payable, 
falling  under  the  ruling,  exceeded  P180,000,000. 
The  enterprise  was  accordingly  hopeless.  The 

1  Memoria  de  Hacienda,  1905-06,  pp.  199-204. 

152 


ADOPTION  OF  THE  GOLD  STANDARD 

specie  was  not  to  be  had  to  satisfy  Limantour's 
order. 

The  bankers  finally  averred  that  by  the  trick 
of  transferring  deposits  to  four  days'  sight,  and 
by  taking  a  pledge  of  some  character  convert- 
ing the  line  into  the  secured  category,  the  rule 
of  the  Secretary  might  be  circumvented.  But 
they  wanted  none  of  that.1  They  wished  the 
rule  itself  abrogated. 

This  memorial  was  signed  by  the  most  dis- 
tinguished bankers  and  publicists  in  Mexico, 
among  whom  were  Ernesto  Madero,  Casasus, 
Obregon,  Landero,  and  Honey.  And  they  were 
right  and  wrong  in  their  main  contention. 
Deposits  at  interest  subject  to  check  ought  with 
reason  to  have  been  buttressed  with  reserves 
ranging  from  12  to  25  per  cent. ;  but  to  have  in- 
sisted on  50  per  cent,  was  unreasonable.  The 
great  difficulty  here  was  clearly  that  of  sorting 
the  accounts  into  demand  and  time,  and  of 
requiring  reasonable  reserves  against  them. 

Limantour,  however,  was  nothing  moved 
in  the  premises;  and  not  until  July  8th  did  he 
make  reply  to  the  memorial.  He  restated  his 
position,  explaining  that  the  rule  was  merely 
explanatory  of  the  general  law,  and  with  un- 
flinching courage  held  to  his  decision.  He  con- 
cluded with  the  order  that  to  the  total  of  notes 

1  Memoria  de  Hacienda,  1905-06,  p.  204. 

153 


PRESENT  AND  PAST   BANKING  IN  MEXICO 

in  circulation  there  should  be  added  and  figured 
against  the  specie  in  vault: 

1.  All  deposits  at  three  days'  sight  or  less,  whether 
interest-bearing  or  not,  except  confidential  deposits. 

2.  All  balances  from  loans  however  generated,  except 
mortgage  or  secured  loans. 

That  order  could  not  be  misinterpreted.  He 
ended  by  saying  that  all  banks  could  easily 
comply  with  the  law  and  that  time  would  be 
granted  for  so  doing,  as  indeed  it  was,  to 
October  31st.1 

The  banks  without  further  protest  set  about 
complying  with  the  regulation,  and  partly 
through  the  scheme  of  classifying  deposit  ac- 
counts and  the  transfer  of  loans  to  the  secured 
column  the  balances  were  established. 

However,  hardly  was  this  matter  disposed 
of  ere  another  scheme  had  to  be  checked. 
Certain  banking  groups  had  deliberately  em- 
barked in  stock-jobbing  enterprises,  that  is  to 
say,  manipulating  their  own  capital  through  ex- 
pansions. But  the  able  head  of  Hacienda  was 
not  disposed  to  permit  any  bank  to  launch  into 
an  orgy  of  speculation.  This  move  was  compli- 
cated with  other  developments,  as  we  shall  see. 

There  was  involved  in  the  shift  from  a  silver 
to  a  gold  standard  great  and  fundamental 

1  Mcmoria  de  Hacienda,  1905-06,  pp.  205-210. 

154 


ADOPTION  OF  THE  GOLD  STANDARD 

changes  in  the  economic  status  of  the  country. 
Happily  for  Mexico,  at  the  time  of  the  transi- 
tion, the  whole  world  was  running  at  fever- 
heat  in  what  was  possibly  the  wildest  specula- 
tive era  of  history,  and  but  for  this  juxtaposi- 
tion serious  troubles  must  have  ensued.  Moneys 
were  flowing  into  the  country  from  foreign 
lands  in  amazing  floods.  Mining,  agriculture, 
industries,  banking — all  were  being  literally 
swamped.  Investors  were  crying  for  oppor- 
tunity to  leave  their  millions  in  Mexico.  Li- 
man  tour  was  not  slow  to  move  in  the  premises. 
It  will  be  recalled  that  in  1899  and  in  1903  he 
had  finally  completed  the  consolidation  of  the 
public  debt,  that  he  had  swept  clean  the  boards 
at  home  of  floating  indebtedness,  and  that  he 
had  been  able  through  his  refunding  operations 
to  reduce  the  rate  on  the  bonded  debt  to  5 
per  cent. 

These  transactions  were  directlyrelated  to  the 
world  situation  of  credits.  The  Banco  Nacional, 
the  Banco  de  Londres,  and  the  Banco  Central, 
profiting  by  the  tide,  increased  their  capital 
shares,  much  to  the  advantage  of  the  inner 
groups,  in  that  the  new  issues  were  sold  at 
heavy  premiums.  This  fact  it  was  which  ren- 
dered restive  certain  state  banking  groups. 
They  saw  the  opportunity  and  besought  of 
Limantour  permission  to  increase  their  capital 

155 


PRESENT  AND   PAST   BANKING  IN  MEXICO 

issues.  In  a  letter  of  September  15,  1905,  lie 
flatly  denied  them  the  right.  He  stated  that 
he  had  been  watching  events;  he  had  noted  the 
tendency  within  banks  to  speculate,  and  one 
of  the  ways  contemplated  the  watering  of 
stocks,  and  yet  another  was  to  buy  stocks  in 
other  institutions  so  as  to  control  them.  He 
would  none  of  this.  He  proposed  to  put  an 
end  to  it.1  He  saw  that  his  own  people  had 
torn  a  leaf  from  the  book  of  a  certain  group  of 
American  bankers,  groups  combining  to  control, 
through  interlocking  directorates,  the  fate  of  a 
chain  of  institutions.  And  it  will  be  recalled 
that  the  reckoning  for  the  United  States  came 
in  the  panic  of  1907.  Since  that  date  federal 
legislation  has  endeavored  to  safeguard  the 
public  against  the  evils  of  interlocking  boards. 

Limantour  recognized  this  danger  and  largely 
saved  Mexico  from  trouble  on  this  score — 
although  he  could  not  prevent  certain  stock 
and  bond  operations  which  in  the  end  tended 
possibly  to  impair  the  solvency  of  some  of  the 
banks. 

The  first  decade  of  the  twentieth  century 
was  truly  extravagantly  staged  in  Mexico.  It 
is  not  easy  to  picture  the  reckless  development 
which  everywhere  ruled  in  the  economic  life. 
Not  only  in  the  realm  of  men  were  extrava- 

1  Memoria  de  Hacienda,  1905-06,  pp.  212-213. 

156 


ADOPTION  OF  THE  GOLD  STANDARD 

gancies  committed,  but  city  and  state  govern- 
ments feverishly  bonded  themselves  to  under- 
take this  activity  or  that — some  beneficial,  some 
worthless.  In  the  mad  bargaining  over  bond 
issues  some  of  the  banks  took  leading  roles,  as, 
for  instance,  the  United  States  Banking  Com- 
pany, a  limited  corporation,  absorbed  an  issue 
of  P739,000  of  bonds  of  the  state  of  Vera  Cruz 
at  91.5,  bearing  5  per  cent.;1  the  Banco  Cen- 
tral purchased  P698,000  of  bonds  of  the  state 
of  Sinaloa  at  86.2  And  so  on  through  the 
catalogue. 

Transactions  of  this  type  were  almost  of 
daily  occurrence,  and  so  long  as  the  banks  could 
turn  about  and  unload  it  was  easy  sailing. 
Europe  was  taking  these  bonds,  especially  those 
carrying  the  national  government's  guaranty 
of  interest,  as  rapidly  as  they  could  be  got 
overseas.  But  a  change  was  coming  and  it 
was  not  far  ahead.  An  indication  that  all  was 
not  well  is  seen  in  the  fact  that  between  June 
20,  1906,  and  March  31,  1907,  small  coins  in 
the  vaults  of  banks  increased  from  Pl,7£l,687 
to  P4,898,885;3  and  the  flow  of  foreign  credits 
greatly  subsided.  This  curtailment  left  many 
of  the  banks  carrying  bonds,  which  were  so 
much  dead  weight. 

1  Memoria  de  Hacienda,  1906-07,  pp.  253-256.  2  Ibid.,  p.  257. 

3  Ibid.,  pp.  282-283. 

157 


However,  the  great  bank-founding  wave  still 
had  not  spent  itself,  nor  were  the  conditions  yet 
ripe  to  end  it.  On  July  22,  1906,  a  concession 
was  granted  to  the  Banco  Mexicano  de  Co- 
mercio  e  Industria,  capitalized  at  P10,000,000 
and  with  right  to  establish  branches  throughout 
the  Republic.  It  was  expected  by  Limantour 
that  this  bank,  which  was  of  the  auxiliary  type 
(refaction) :  would  greatly  stimulate  interest  in 
this  field.  He  was  still  harboring  the  hope 
that  something  real  might  be  achieved  with 
this  type  of  institution.  "It  is  notable,"  he 
said,  "the  development  which  has  begun  in  the 
field  of  auxiliary  banks,  from  which  so  many 
benefits  are  to  be  expected  for  agriculture  and 
mining."1  And  it  was  his  pleasure — October 
16,  1907 — to  grant  a  concession  to  the  Banco 
Refaccionario  de  Laguna,  which  proved  to  be 
the  last  of  his  auxiliary  banks. 

Before  the  fiscal  year  1907-08  had  ended 
troubles  were  upon  the  country.  In  a  com- 
munication to  the  Comision  de  Cambios  y 
Moneda,  Limantour  wrote,  "Because  of  the 
persistent  scarcity  of  drafts  on  foreign  coun- 
tries— a  condition  brought  about  partly  through 
the  low  price  of  our  principal  products  of  ex- 
port as  well  as  through  the  small  sum  of  in- 
vestments received  from  foreign  countries" — 

1  Memoria  de  Hacienda,  1906-07,  p.  XVI. 

158 


ADOPTION  OF  THE  GOLD  STANDARD 

the  conditions  throughout  Mexico  are  bad.1 
There  was  a  great  shortage  of  capital,  and  sales 
of  securities  were  negligible;  also  it  was  difficult 
to  effect  collections  of  debt.  The  government 
experienced  a  considerable  shrinkage  in  its 
revenues  and  was  forced  to  borrow  from  the 
Banque  de  Paris  et  Pays  Bas  25,000,000  francs, 
netting  only  P9,652,509.2  The  sudden  stop- 
page of  the  inflow  of  foreign  capital,  due  to 
universal  depression,  had  been  a  large  com- 
bating factor  in  the  disarrangement  of  the 
national  budgetary  equilibrium.  Payments  of 
interest  on  the  public  and  other  debts  and  the 
withdrawal  of  deposits  in  Mexican  banks  threw 
a  heavy  burden  on  the  exchanges,  resulting  in 
the  borrowing  operations  indicated.  It  was  a 
trying  time  for  the  country. 

The  banking  system  by  the  end  of  the  year 
1907  had  been  put  to  severe  tests.  First,  it 
had  had  to  bear  the  brunt  of  shifting  from  a 
silver  to  a  gold  basis,  and  providing  ways  and 
means  for  that  operation — a  more  or  less  deli- 
cate affair,  for  the  reason  that  the  commercial 
life  of  the  country,  its  industrial  activities,  had 
need  to  be  provided  for  and  accustomed  to  the 
new  regime.  It  was  a  tremendously  compli- 
cated operation,  involving  reorganizations  ex- 
tending from  the  remotest  hamlet  to  the  Treas- 

1  Memoria  de  Hacienda,  1807-08,  pp.  306-307.          2  Ibid.,  p.  307. 

159 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

ury  in  the  capital.  The  wage  scales  had  need 
to  be  revised  in  all  their  schedules,  running 
through  agriculture,  mining,  and  industry. 
Prices  of  goods  in  every  mart  had  to  be  over- 
hauled; tariff  schedules  and  taxes  of  all  types 
had  need  to  be  revamped  to  meet  the  changed 
conditions. 

It  is  not  too  much  to  say  that  it  would  have 
been  impossible  to  achieve  this  transition  but 
for  the  co-operation  extended  the  government 
by  the  banks.  The  very  first  operation  had 
been  the  creation  of  a  P10,000,000  fund  de- 
signed for  the  purpose  of  stabilizing  the  ex- 
changes, and  this  had  been  advanced  by  the 
Banco  Nacional.  Through  the  closing  of  the 
mints  to  the  free  coinage  of  silver,  there  at 
once  developed  silver  shortages,  which  were 
intensified  by  the  heavy  exportations  due  to 
higher  prices  in  the  markets  for  that  metal. 
Between  May  and  October,  1905,  Senor  Liman- 
tour  estimated  that  the  silver  pesos  in  circula- 
tion had  been  diminished  by  P3, 000,000;  and 
by  the  end  of  the  year  the  reduction  had  been 
much  increased  through  the  exportation  of 
probably  P10,000,000  contributed  by  the  Co- 
mision  de  Cambios  y  Moneda,  and  by  the  banks. 
Nor  did  the  curtailment  end  there — it  still 
was  to  exert  its  pressure  with  ever-increasing 
ill  effects. 

J60 


ADOPTION  OF  THE  GOLD  STANDARD 

As  Conant  has  pointed  out,1  to  meet  the 
withdrawal  of  silver  bank-notes  came  in  to  fill 
the  void;  but  there  is  error  in  the  statement, 
because  of  the  fact  that  bank-notes  could  not 
and  did  not  fill  the  place  occupied  by  silver  cur- 
rency. The  mass  of  people  were  unaccustomed 
to  paper  currency,  and  many  of  them  resented 
the  substitution;  and  here  was  an  element  of 
decisive  import  in  the  revolutionary  propa- 
ganda, and  it  has  been  too  lightly  appraised  by 
those  searching  for  causes. 

The  note  circulation  increased  between  Janu- 
ary, 1905,  and  July  of  that  year  from  P82,995,- 
576  to  P92,002,194.  The  Banco  Nacional  issued 
of  this  increase  approximately  P6, 000,000,  a 
condition  brought  about  in  part  through  the 
heavy  advances  it  had  made  to  the  Comision 
de  Cambios  y  Moneda.  This  increase  in  cir- 
culation, keeping  pace  in  a  measure  with  the 
withdrawals  of  silver,  was  a  perfectly  logical 
unfolding.  No  other  course  would  have  been 
possible;  but  even  this  palliative  was  far  from 
satisfying  the  public  needs. 

Early  in  1907  panicky  conditions  began  to 
develop  in  Mexico;  and  as  the  year  moved  on- 
ward the  world-wide  depression  culminated  in 
New  York  in  October  and  November  in  what 
is  known  as  the  Bankers'  Panic — a  panic  which, 

1  Cooant,  Banking  System  of  Mexico,  p.  74. 

161 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

indeed,  for  a  time  prostrated  the  United  States, 
compelling  the  suspension  of  specie  payments 
on  the  part  of  practically  every  bank  in  the 
nation.  Mexico,  luckily,  was  saved  from  acute 
developments,  through  having,  in  the  first  place, 
a  better  system  of  banking  than  that  of  the 
United  States;  and,  secondly,  because  of  her 
economic  position,  which  had  been  vastly  im- 
proved through  the  higher  prices  ruling  for  her 
silver  output;  and  from  the  further  fact  that 
during  the  recent  years  there  had  been  a  tre- 
mendous augmentation  in  the  totals  of  foreign 
capital  loosed  within  her  borders. 

The  transition  from  a  silver  to  a  gold  stand- 
ard had  been  made  with  comparatively  little 
shock,  to  all  outward  appearance;  but  more  or 
less  discontent  had  been  attendant  upon  the 
event,  particularly  in  the  remote  districts  of 
the  Republic — a  discontent  which  later  was  to 
play  a  considerable  role  in  the  undoing  of  the 
regime  of  Don  Porfirio  Diaz.  The  general  condi- 
tions of  the  banking  institutions  of  the  country 
wore  an  air  of  superficial  prosperity,  but  to  the 
trained  student  there  were  symptoms  betoken- 
ing disease;  and  Senor  Limantour  on  February 
10,  1908,  addressed  a  circular  letter  to  all  the 
chartered  banks,  requesting  that  they  send 
representatives  for  a  conference  in  the  Capital. 

162 


XII 

REFORM   LAW   OF   1908 

IN  his  letter  of  February  10th,  Limantour 
struck  squarely  at  the  chief  abuses  which 
had  arisen  and  at  the  large  dangers  to  which  the 
banks  were  exposed.  It  was  his  purpose  to 
disclose  the  real  situation  with  a  view  to  en- 
listing the  co-operation  of  the  bankers  in  meas- 
ures he  proposed  to  enact.  He  says  frankly, 
with  a  suggestion  of  pride,  that  he  and  promi- 
nent bankers  had  tried  to  execute  reforms  in 
the  banking  machinery  of  the  country.  How- 
ever, he  was  compelled  to  admit  that,  while 
progress  had  been  made,  the  results  had  not 
measured  up  to  expectations. 

"The  lack  of  personal  experience,"  he  went 
on  to  say,  "in  the  management  of  institutions 
new  to  the  country,  and  certain  inveterate  cus- 
toms of  our  merchants,  manufacturers,  farm- 
ers, and  men  of  affairs,  are  the  chief  obstacles 
against  which  things  have  broken  each  time 
effort  has  been  made  to  implant  reforms  in 
the  mode  of  conducting  business."1 

^Memoria  de  Hacienda,  1907-08,  p.  180. 
12  163 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Something,  it  is  true,  has  been  achieved  [he  wrote], 
but  much  still  remains  to  be  done,  and  it  is  important 
that  we  should  address  ourselves  to  the  task;  for,  in 
proportion  as  new  interests  are  created  and  the  volume 
of  business,  both  domestic  and  international,  increases, 
more  urgent  becomes  the  necessity  of  adapting  ourselves 
to  the  altered  commercial  conditions  and  of  raising  the 
methods  and  organization  of  our  banks  to  a  standard 
commensurate  with  the  present  demands  on  them.  The 
recent  stress  arising  from  the  financial  crisis,  which 
commenced  in  the  United  States  and  quickly  spread  to 
Europe,  has  been  the  means  of  evidencing  deficiencies 
which  are  almost  incompatible  with  the  duty  incumbent 
on  the  banks  of  furnishing  efficacious  protection  to  all 
who  by  their  capital  or  industry  contribute  to  the  prog- 
ress of  the  country;  the  time  is  therefore  ripe  for  re- 
newed and  more  vigorous  efforts  for  the  attainment  of 
the  desired  end,  and  in  these  efforts  we  shall  be  guided 
by  the  lessons  of  experience. 1 

And  again  he  pointed  boldly  at  one  of  the 
weakest  spots  in  the  banking  system: 

A  very  common  idea  prevailing  in  every  class  of  the 
community  is  that  the  functions  of  a  bank  of  issue  and 
deposit  are  the  same  as  those  of  a  private  banker  or 
even  of  a  mere  money-lender;  that  the  chief  obligation 
assumed  by  the  banks  as  a  consequence  of  their  having 
obtained  a  concession  from  the  government  is  the  duty 
of  lending  the  last  penny  in  their  coffers  to  the  public; 
that  every  one  who  considers  himself  entitled  personally 
to  be  trusted,  or  who  possesses  property  more  or  less 
valuable  and  susceptible  of  easy  realization,  has  a  right 

1  Memoria  de  Hacienda,  1907-08,  pp.  180-181. 

164 


REFORM  LAW  OF  1908 

to  demand  accommodation  from  the  banks,  that  the 
banks  fail  to  fulfil  the  object  of  their  existence  and  lay 
themselves  open  to  the  severest  strictures  if  they  de- 
cline to  do  business  just  when  money  becomes  scarce 
and  when  private  bankers  and  money-lenders  turn  bor- 
rowers away.  These  and  similar  views  tend  to  vitiate 
the  public's  conception  of  institutions  of  credit,  and, 
what  is  worse,  lead  those  institutions  themselves  astray 
by  working  on  their  fears  of  being  deprived  of  their 
clientele  by  other  establishments  more  complaisant,  if 
less  cautious. x 

He  scored  the  banks  for  their  too  energetic 
pursuit  of  profits,  without  regard  to  reserves. 
He  emphasized  that  banks  should  keep  their 
paper  liquid  in  order  to  redeem  their  notes  and 
their  depositor  obligations.  More  attention 
should  be  paid  to  mercantile  paper — it  should 
be  kept  cleaner.  He  deprecated  the  presence 
of  too  much  long-time  paper  in  the  portfolios 
of  the  banks.  He  asserted  that  this  was  the 
worst  enemy  to  be  combated.  Few  people 
borrowed  with  the  expectation  of  paying  at  the 
maturity  of  the  obligation.  Extension  after 
extension  followed  in  due  course. 

While  Limantour  did  not  so  phrase  it,  the 
point  of  it  was  that  the  banks  were  supplying 
capital  to  industry  and  trade,  instead  of  meet- 
ing only  temporary  needs  as  rightly  befitted 
the  scope  of  commercial  banks.  This  evil  has 

1  Memoria  de  Hacienda,  1907-08,  p.  181. 

165 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

immemorially  pursued  banks  in  undeveloped 
territories.  The  opportunity  to  reap  large 
profits,  together  with  the  demand  that  natu- 
rally arises,  renders  it  most  difficult  for  bank- 
ers to  keep  to  the  narrow  way. 

He  also  puts  his  finger  on  one  of  the  sore 
spots  when  he  attacked  the  method  adopted 
by  the  Mexican  banks  in  handling  deposits. 
He  alleged,  and  quite  correctly,  that  there  was 
great  confusion  in  the  current  accounts  creditor 
(payable)  and  debtor  (receivable);  that  de- 
posits, clearly  demand,  were  hidden  in  these 
catch-all  accounts  for  the  purpose  of  drawing 
interest,  when,  as  a  matter  of  fact,  they  were 
subject  to  check.  He  urged  that  care  should 
be  exercised  in  separating  demand  from  in- 
terest-bearing deposits,  and  deprecated  the 
paying  of  too  high  rates  for  deposits.  He 
rather  startlingly  proposed  to  give  priority  of 
payment  to  non-interest-bearing  accounts.1 

It  is  an  interesting  fact  that  Senor  Limantour 
here  took  a  leaf  from  the  banking  acts  of  some 
of  the  states  of  the  American  Union,  which 
already  had  differentiated  between  interest- 
bearing  and  non-interest-bearing  accounts.  The 
guaranty-of-deposit  laws  of  some  of  our  states 
apply  exclusively  to  non-interest-bearing  de- 
posits. Another  matter  which  he  criticized 

1  Memoria  de  Hacienda,  1907-08,  p.  183. 

166 


REFORM  LAW  OF  1908 

harshly  was  the  eagerness  of  most  bankers  to 
secure  deposits  and  the  contest  waged  to  secure 
new  business.  The  price  paid  was  too  high, 
and  soon  or  late  would  redound  to  the  injury 
of  the  banks  themselves.  With  a  degree  of 
canniness  almost  Scotch,  he  opposed  the  fixing 
by  banks  of  credits  in  blank — that  is  to  say, 
leaving  the  matter  of  drawing  to  the  discretion 
of  the  client.  He  also  objected  to  the  loaning 
of  funds  to  customers  outside  the  zone  of  the 
bank;  and  urged  the  strict  limiting  of  time  to 
any  customer,  and  above  all  to  directors. 

This  was  a  circular  letter  indeed  calculated 
to  rouse  bankers  to  a  sense  of  their  real  situa- 
tion. Limantour,  as  a  matter  of  fact,  in  De- 
cember of  the  preceding  year  had  set  out  in  his 
annual  budgetary  statement  many  of  the  ob- 
jections above  cited.  Over  this  period,  while 
on  the  whole  there  had  been  no  failures  among 
banking  institutions,  the  Banco  Yucateco  and 
the  Mercantil  de  Yucatan  found  themselves 
during  the  panic  of  1907  in  financial  straits; 
and  early  in  1908  the  discovery  that  officials 
of  the  Bank  of  Yucatan  had  been  guilty  of 
heavy  peculations  intensified  the  situation  to 
such  an  extent  that  the  state  banks  were  forced 
to  create  a  guaranty  fund  of  P400,000  to  safe- 
guard these  two  institutions.  The  Yucatan 
muddle  was  clarified  through  the  consolidation 

167 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

of  the  above-mentioned  banks  into  the  Banco 
Peninsular  Mexicano,  capitalized  at  Pi  6,- 
500,000. 

Responding  to  Senor  Limantour's  invitation, 
there  assembled  in  the  capital  on  April  4,  1908, 
bankers  from  every  end  of  the  Republic.  Al- 
most without  exception  the  proposals  for 
amendment  were  approved  and  the  direct 
fruits  of  the  conference  were  gathered  in  a 
bill  presented  on  May  9th  to  the  Federal 
Congress. 

In  his  letter  accompanying  the  proposed 
reform  bill,  Limantour  recapitulated  the  chief 
defects  of  the  banking  law,  most  of  which  were 
touched  upon  in  his  communication  to  bankers 
of  February  10th.  Further  than  this,  he  forti- 
fied his  position  by  saying  that  he  had  early  dis- 
covered the  deficiencies  of  the  general  law  of 
1897;  but  that  he  hoped  in  the  course  of  a  few 
years  to  be  able  to  perfect  a  system  at  pnce 
safe  and  fitted  to  carry  on  the  work  of  develop- 
ing the  national  resources.  But,  even  as  it 
was,  he  affirmed  that  great  progress  had  been 
made. 

Under  the  shadow  of  the  law  [he  wrote]  banking 
has  notably  unfolded  in  the  country,  including  the 
whole  land  in  its  operations.  At  that  time  [1897]  the 
paid  capital  and  surplus  of  the  banks  was  P47,000,000; 
and  the  total  of  resources  was  but  a  little  in  excess  of 

168 


REFORM  LAW  OF  1908 

P139,000,000,  while  to-day  the  capital  and  surplus  ex- 
ceed P234,000,000  and  the  resources  of  the  various  in- 
stitutions of  credit,  P761, 000,000. 1 

While  Limantour  felt  that  a  marked  advance 
had  been  made,  he  called  attention  to  the  pre- 
ponderance of  banks  of  emission.  Mortgage 
banks  and  auxiliary  banks  had  followed  slowly. 
Their  need,  though,  was  unquestioned  and  the 
banks  of  emission  had  been  drawn  out  of  their 
way,  endeavoring  to  fill  the  gap — their  re- 
sources had  been  accordingly  impounded  in 
long-time  securities.2 

On  this  score,  how  far  indeed  was  this  over- 
lapping of  operations  on  the  parts  of  the  banks 
of  emission  or  commercial  banks  responsible 
for  the  strangling  of  the  mortgage  and  auxiliary 
banks — or  the  precluding  of  their  establish- 
ment? It  is  apparent  that  the  commercial 
banks  not  only  endeavored  to  cover  their  own 
particular  domain,  but  entered  that  of  the 
other  two,  striving  to  monopolize  the  whole 
field  of  banking.  And  here  lay  Limantour's 
problem:  how  to  relieve  the  commercial  banks 
of  the  heavy  burdens  of  bonds  and  long-term 
paper  they  had  lightly  assumed;  of  making 
them,  in  a  word,  liquid;  and  of  fixing  hard 
and  fast  the  limits  for  future  operations.  The 
long  and  short  of  it  was  that  the  able  secretary 

1  Memoria  de  Hacienda,  1907-08,  pp.  453-454.  2  Ibid.,  p.  454. 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

had  been  too  lax.    He  should  have  curbed  at 
the  outset  the  rapacity  of  the  commercial  banks 
through  administrative  repression,  and  should 
earlier  have  inaugurated  his  reforms. 
Then  he  went  on  to  say: 

The  central  idea  of  the  bill,  in  so  far  as  banks  of 
issue  are  concerned,  is  so  to  adapt  their  mechanism  as 
to  provide  an  absolute  guaranty  for  the  redemption  of 
their  notes  at  any  moment,  and  to  enable  them,  during 
seasons  of  business  stringency,  to  expand  their  opera- 
tions, instead  of  being  obliged,  as  has  hitherto  been  the 
case,  to  restrict  them.  In  order  that  banks  of  issue  may 
be  in  a  position  to  perform  the  functions  that  are  properly 
theirs,  it  is  necessary  that  the  note  circulation,  the  de- 
posits, and,  in  general,  all  immediate  liabilities  of  the 
institution,  should  be  represented  by  assets  that  are 
readily  negotiable  or  that  are  sure  to  be  paid  on  maturity. 
It  is  also  desirable  to  prevent  limiting  the  services  of 
these  banks  to  a  small  group  and  to  extend  the  benefits 
of  the  credit  facilities,  which  they  afford,  to  the  largest 
possible  number  of  clients.  Another  desideratum,  for 
which  a  variety  of  reasons  can  be  adduced,  is  that  each 
bank  should  preferably  endeavor  to  satisfy  the  credit 
requirements  of  the  territory  that  has  been  assigned  to 
it  as  the  sphere  of  its  activities.  It  has  been  sought  to 
attain  these  ends  by  providing  in  the  bill  that  banks  of 
issue  may  not  accept  uncovered  drafts  or  bills  of  ex- 
change nor  open  credit  accounts  that  cannot  be  closed 
at  any  moment  at  the  will  of  the  bank;  by  forbidding 
such  banks  to  underwrite  issues  or  shares  of  bonds  for 
an  amount  exceeding  10  per  cent,  of  the  sum  represented 
by  the  capital  of  the  institution  plus  its  reserves,  except- 
ing, for  reasons  that  can  be  readily  understood,  securities 

170 


REFORM  LAW  OF  1905 

of  the  Federal  Debt  and  securities  guaranteed  by  the, 
nation;  by  prohibiting  them,  furthermore,  to  operate, 
on  their  own  account,  mines,  metallurgical  establish- 
ments, mercantile,  industrial,  or  agricultural  enterprises, 
or  to  conduct  an  insurance  business;  by  imposing  on 
them  the  duty  of  not  operating  outside  of  their  financial 
jurisdiction,  save  when  exceptional  security  is  offered; 
and,  finally,  by  debarring  them  from  allowing  any  single 
individual  or  firm  to  contract  liabilities  toward  them  for 
amounts  exceeding  in  the  aggregate  10  per  cent,  of  their 
paid-up  capital.1 

There  can  be  no  serious  objection  to  any  of 
the  matters  here  proposed — they  were  salutary 
and  far-reaching.  But  Limantour  had  not 
finished  his  catalogue.  He  proposed  to  require 
the  actual  clearance  of  bank-notes.  Certain 
banks  had  agreed  in  the  course  of  their  opera- 
tions to  collect  the  notes  of  certain  other  banks 
and  to  hold  them  in  vault,  keeping,  the  while, 
notes  of  other  institutions  in  circulation. 
Through  this  means  in  some  cases  embarrass- 
ment had  been  narrowly  averted  through  the 
sudden  presentation  for  redemption  of  large 
sums  of  notes.  Such  tactics  had  been  indulged 
in  by  rival  institutions.  To  compel  clearance 
operations  was  necessary  not  only  for  the  pro- 
tection of  the  weaker  banks,  but  for  the  pro- 
tection in  a  larger  way  of  the  public  interest 
through  forcing  out  of  circulation  any  redun- 

1  Memoria  de  Hacienda,  1907-08,  p.  455. 

171 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

dancy  of  notes.    Under  Limantour's  plan  there 
could  be  no  inflation  of  the  currency. 

The  banks  of  emission  or  the  commercial 
banks  were  not  alone  in  having  developed  dan- 
gerous tendencies.  So  also  had  mortgage  banks. 
Marked  weaknesses  were  in  evidence.  Li- 
man  tour's  words  were: 

The  same  purpose — viz.,  that  of  insuring  as  far  as 
possible  an  absolute  guaranty  for  the  payment  of  all 
demand  liabilities — has  been  kept  in  view  by  my  depart- 
ment in  framing  the  enactments  which  deal  with  de- 
posits received  by  the  mortgage  banks.  The  precepts 
of  the  law  at  present  in  force  on  this  subject  are  open  to 
objection,  for  they  permit  these  banks  to  receive  de- 
posits up  to  five  times  the  amount  of  their  capital,  and 
they  allow  the  guaranty  for  such  deposits  to  consist  of 
the  mortgage  bonds,  which  banks  of  this  nature  issue,  and 
of  ordinary  securities,  without  determining  the  propor- 
tion that  must  be  maintained  between  the  deposits  and 
the  cash  holdings  of  the  institution.  A  clause  in  the 
accompanying  bill  makes  provision  for  a  concrete  guar- 
anty for  demand  deposits,  or  deposits  payable  at  three 
days'  notice,  the  guaranty  in  question  to  consist  of 
cash  for  at  least  one-half  of  such  deposits,  of  immediately 
negotiable  securities  for  one-quarter,  and  notes  dis- 
counted, running  for  not  more  than  six  months,  for  the 
remaining  quarter.  It  is  also  proposed  that  the  total 
of  such  deposits  must  never  be  more  than  twice  the 
amount  represented  by  the  paid-up  capital  plus  the  re- 
serve fund.  To  understand  the  reason  for  the  apparent 
rigor  of  this  rule,  it  must  be  borne  in  mind  that  the 
nature  of  the  operations,  in  which  mortgage  banks  en- 

172 


REFORM  LAW  OF  1908 

gage,  is  entirely  distinct  from  the  business  of  the  banks 
of  issue  and  deposit,  seeing  that  the  former  can  in  no 
case  count  on  the  resources  tied  up  in  mortgage  loans,  to 
pay  the  deposits  held  by  them,  so  that  it  is  quite  indis- 
pensable that  those  deposits  should  be  protected  by  a 
full  guaranty  of  their  own. 

Limantour,  in  spite  of  his  penetration  into 
the  banking  problems  of  his  country,  did  not 
appear  fully  to  have  appreciated  the  funda- 
mentally weak  position  of  his  mortgage  banks. 
The  most  favorable  possible  legislation  could 
not  have  fostered  any  great  development  in 
banks  of  this  type,  for  the  reasons  pointed  out, 
that  their  successful  operation,  following  Euro- 
pean experience,  depended  on  an  investing 
public;  and  that  investing  public,  so  far  as 
Mexico  was  concerned,  was  non-existent.  Rela- 
tively speaking,  the  credits  derived  through 
the  sale  of  bonds  of  the  mortgage  banks  were 
mainly  of  foreign  origin. 

But  certainly  he  did  safeguard  this  type  of 
bank  through  the  enactments  above  outlined. 

Another  and  very  important  matter  was  the 
clarifying  of  the  spheres  of  operation  of  the 
mortgage  and  auxiliary  banks.  Frequent  clashes 
had  arisen  between  banks  of  the  two  types  over 
legal  rights,  for  the  law  had  not  been  explicit 
in  its  definitions.  The  question  of  priority  of 
lien,  where  two  banks  were  concerned,  had 

173 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

proved  most  vexatious  to  the  courts.  The 
status  of  a  loan  by  an  auxiliary  bank  to  an 
hacendado,  who  had  earlier  pledged  his  prop- 
erty to  a  mortgage  bank,  was  clearly  fixed.  It 
was  provided  that  in  the  event  an  auxiliary 
bank  should  loan  to  the  owner  of  a  mortgaged 
farm,  the  limit  should  be  15  per  cent,  of  the 
value  of  the  estate;  and  it  was  further  required 
of  the  auxiliary  bank  to  see  that  the  sum  loaned 
went  into  the  purchase  of  seed,  primary  needs, 
machinery,  payment  of  labor,  or  conservation 
of  the  property.  Only  then  would  its  priority 
of  lien  be  established.1 

Limantour  further  remarked  —  what  was  ob- 
vious to  one  scanning  the  consolidated  table 
showing  the  circulation  of  notes  —  that  there 
was  a  tendency  to  concentration  in  powerful 
hands  —  to  wit,  the  Banco  Nacional;  and  he 
was  of  the  opinion  that  a  number  of  the  banks 
of  emission  might  to  advantage  voluntarily  re- 
linquish the  right  to  issue  notes  and  convert 
into  auxiliary  banks.  Provision  was  made  for 
such  eventuation.  And  it  is  not  improbable 
that  in  the  back  of  the  Secretary's  mind  was 
the  knowledge  that,  so  heavily  burdened  were 
some  of  the  banks  with  stocks  and  bonds  and 
real-estate  paper,  conversion  into  either  mort- 


Reformat  a  la  Ley  de  Inslitudones  de  Cr6dito,  by  Joaquin  D. 
Casasus,  Mexico,  1908,  p.  337. 

174 


REFORM  LAW  OF  1908 

gage  or  auxiliary  banks  was  inevitable — or  else 
liquidation. 

The  bancos  ref  accionarios,  or  auxiliary  banks, 
also,  came  in  for  curbing.  In  Limantour's 
language: 

Inasmuch  as  the  auxiliary  banks  assume  toward  the 
public  liabilities  which  they  may  be  called  on  to  meet 
at  any  moment  owing  to  their  receiving  call  deposits, 
there  is  good  ground  for  throwing  around  them  restric- 
tions similar  to  those  proposed  for  banks  of  issue,  though 
less  severe,  for  it  is  not  thought  desirable,  for  example, 
to  subject  the  auxiliary  banks  to  the  limitations  with 
respect  to  the  underwriting  of  bonds  and  shares,  as 
these  institutions  to  some  extent  resemble  financial  as- 
sociations and  there  are  not  yet  in  the  country  any  other 
establishments  better  qualified  than  these  banks  to 
handle  issues  of  bonds  and  shares. 

In  regard  to  the  deposits  received  by  the  auxiliary 
banks,  it  is  proposed  that  these  banks  shall  be  obliged 
to  hold  always  in  cash  40  per  cent,  of  all  deposits  pay- 
able either  on  demand  or  at  three  days'  call,  with  the 
privilege,  however,  of  holding,  instead,  immediately 
negotiable  securities  up  to  one-half  of  the  40  per  cent. 
The  remaining  60  per  cent,  must  consist  of  discounted 
paper  running  for  not  more  than  six  months. l 

It  had  been  Limantour's  purpose  originally 
to  organize  his  bancos  refaccionarios  to  sup- 
plement particularly  the  operations  of  the  mort- 
gage banks.  But  he  had  been  disappointed  in 
the  results.  There  had  been  but  eight  such  in- 

1  Memoria  de  Hacienda,  1907-08,  p.  456. 

175 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

stitutions  chartered  during  the  eleven  years 
following  the  passage  of  the  Bank  Act  of  1897. 
These  banks  were  the  Banco  Central  Mexicano, 
Banco  Mexicano  de  Comercio  e  Industria, 
Banco  Refaccionario  de  Campeche,  Banco  Co- 
mercial  Refaccionario  de  Chihuahua,  Banco  de  la 
Laguna,  Banco  Refaccionario  de  Michoacan. 
(The  banks  of  Campeche  and  Michoacan  were 
converted  into  banks  of  emission  under  the 
dates  of  October,  1908,  and  June,  1909,  re- 
spectively.) 

At  the  date  of  the  Reform  law  there  were 
actually  in  operation  in  the  Republic  but  four 
banks  of  this  type — the  Central  Mexicano,  the 
Comercial  of  Chihuahua,  the  Comercio  e  In- 
dustria, and  the  Banco  de  la  Laguna. 

As  for  the  Banco  Central  Mexicano,  which 
completely  overshadowed  the  banks  of  this 
type,  it  had  been  organized,  as  we  have  seen, 
to  serve  as  the  unifying  element  in  the  state 
banking  system.  Its  purpose  had  not  been 
primarily  to  act  as  an  auxiliary  bank  in  fulfil- 
ment of  the  ideas  entertained  by  Limantour 
when  he  recommended  the  enactment  of  his 
law.  As  we  have  seen,  it  operated,  in  a  strict 
sense,  partially  outside  the  pale  of  the  General 
Banking  law.  The  Banco  Central  served  as  a 
clearing-house,  as  financial  agent,  and  as  a 
discounting  center  for  the  state  banks.  It  had 

176 


REFORM  LAW  OF  1908 

been  hoped  by  those  chiefly  instrumental  in 
its  organization  that  it  might  be  developed  into 
a  large  reserve  bank,  one  to  which  in  times  of 
stress  its  members  might  apply  for  assistance. 
But  just  here  lay  the  fundamental  weakness  in 
the  equation.  The  powers  of  the  Banco  Cen- 
tral were  such  as  to  limit  its  ability  to  serve. 
Its  capital  resources  were  too  insignificant  for 
the  burdens  which  it  was  presumed  to  bear,  for 
once  its  capital  had  been  absorbed  through 
the  taking  over  of  long-time  loans  from  the 
state  banks — as  had  indeed  been  the  case — 
the  condition  of  the  Banco  Central  was  similar 
to  that  of  the  man  who  has  taken  upon  his  back 
a  load  too  heavy  to  bear.  The  load  must  be 
shifted,  else  collapse,  and  if  that  load  shall 
chance  to  be  rubbish  it  may  prove  hopeless  to 
find  a  willing  back  upon  which  to  lay  it. 

Such,  indeed,  came  to  be  the  condition  of  the 
Banco  Central.  It  was  nearly  helpless  on  its 
own  account,  and  because  of  that  helplessness 
the  whole  state  banking  structure  was  threat- 
ened. 

On  June  19, 1908,  Congress  answered  Liman- 
tour's  petition  by  enacting  in  toto  his  bill.  In 
the  main,  we  have  treated  the  chief  topics 
carried  in  the  text,  but  it  remains  to  add  that 
banks  of  emission  might  no  longer  be  incorpo- 
rated with  less  than  Pi, 000,000  of  capital;  that 

177 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

they  were  forbidden  to  make  loans  for  terms 
exceeding  six  months  or  to  discount  notes  with 
less  than  two  names  of  established  solvency, 
to  make  mortgage  loans,  save  as  provided  in 
recovery  cases.1 

A  transitory  article  set  out  that  all  banks 
should  comply  with  the  terms  of  the  law  by 
July  1,  1909,  and  they  did  so  comply;  but  the 
law  was  never  put  fully  to  the  test.  The  revo- 
lution was  at  hand. ' 


1  Reforms  and  Additions  to  the  General  Law  of  Institutions  of  Credit, 
C.  Art.  29,  I-III. 


XIII 

EVE  OF  THE  MADERO  REVOLUTION 

WE  have  seen  that  the  banking  law  of  1897 
was  thoroughly  revamped  through  the 
reforms  of  1908.  The  amendments  of  1905 
had  been  inconsequential  in  comparison.  It  is 
to  be  regretted  that  Limantour's  projected  im- 
provements could  not  have  been  fully  tried — 
that  they  should  have  been  cut  off  by  the  revo- 
lution. 

A  comparative  study  of  a  little  more  than 
ten  years  of  banking  experience  in  the  Republic 
may  be  of  interest  at  this  stage,  because  we 
are  now  rapidly  approaching  the  apogee  in 
the  banking  situation.  The  following  tables 
carry  data  of  prime  importance.1 

Several  rather  striking  things  are  shown  in 
the  these  tables.  To  begin  with,  the  unpaid 
capital  at  the  close  of  the  fiscal  year,  June 
30,  1909,  amounted  to  but  Pl,019,300  against 
P12,940,000  in  June  30,  1897.  The  paid'capital 

1  Bolelln  de  Estadistica  Fiscal,  Fiscal  Year  1908-09,  No.  340,  pp.  212- 
213;  222-223. 
13  179 


PRESENT  AND  PAST  BANKING   IN  MEXICO 


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180 


EVE  OF  THE  MADERO  REVOLUTION 

increased  over  the  same  period  from  P36,050,- 
000  to  PI  18,800,000.  The  reserve  fund,  always 
indicative  of  healthfulness  in  banking  estab- 
lishments, showed  an  increase  from  P6, 25 2, 2 63 
to  P51, 308,094.  On  the  resource  side,  cash  in 
vault  had  increased  from  P45,911,407  to  P88,- 
626,336.  Intimately  associated  with  this  was 
the  expansion  in  note  circulation  from  P42,240,- 
491  to  P92,221,477.  The  maximum  circulation 
for  the  decade  had  been  reached  in  1907,  when 
the  totals  approximated  P98,500,000. 

Among  the  assets  an  item  appearing  first  in 
1898  shows  a  radical  development — that  is, 
the  entry  headed  "Stocks  and  Bonds."  From 
nothing  in  1897  this  total  had  climbed  to 
P43,714,571.  The  worst  of  it  is,  as  later  de- 
velopments have  revealed,  a  large  proportion  of 
the  securities  against  which  advances  were 
made  were  of  banks  themselves — including 
stocks  and  bonds.  In  short,  Mexican  financiers 
cleverly  appropriated  the  scheme  which  had 
been  developed  in  the  United  States,  whereby 
one  banking  institution  would  make  loans  to 
its  friends  based  on  the  hypothecation  of  the 
shares  of  an  affiliated  bank;  this  institution  in 
turn  would  extend  similar  lines,  and  so  on. 
As  is  well  known,  this  endless  chain  came  to  be 
an  abuse,  and  was  responsible  in  part  for  the 
crash  of  banks  in  New  York  City  in  1907, 

181 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

This  was,  indeed,  one  of  the  matters  in- 
veighed against  by  Limantour;  but  instead 
of  a  reduction  under  this  head  following  the 
conference  of  bankers  in  1908,  the  statement 
of  banks  for  June  SO,  1909,  showed  an  in- 
crease in  loans  of  this  character  of  approxi- 
mately P12,500,000. 

A  development  in  the  right  direction  is  in- 
dicated by  a  glance  at  the  comparative  results 
shown  in  the  column  for  discounted  paper. 
There  was  a  sharp  decrease  from  1907  to  1909 
of  almost  Pi 00,000,000 — a  shrinkage  of  more 
than  50  per  cent.  And  the  same  comment 
applies  to  secured  loans.  For  the  same  period 
they  fell  from  P110,000,000  to  P53,000,000— 
a  result  growing  out  of  the  depressed  conditions 
through  which  the  country  was  passing.  This 
depression  was  reflected,  too,  in  the  mortgage 
loans  of  the  banks.  This  column  was  swelled 
through  an  effort  on  the  part  of  banks  to  save 
themselves  from  loss  on  outstanding  credit  lines. 
Totals  for  loans  of  this  character  in  all  the  banks 
rose  from  Pl,680,000  in  1906  to  P10,432,000 
in  1909. 

An  even  more  startling  situation  is  developed 
in  the  current  accounts  debtor,  or  the  open 
account  receivable.  From  June  30,  1897,  to 
June  30,  1909,  the  totals  had  grown,  in  round 
numbers,  from  P25,000,000  to  P441,000,000. 

182 


EVE  OF  THE  MADERO  REVOLUTION 

Of  course,  there  was  a  heavy  offset  in  the  cur- 
rent accounts  creditor,  or  deposits  account, 
which  for  the  same  period  had  risen  from 
P50,000,000  to  P347,000,000.  The  matter  to 
be  contrasted  in  these  current  accounts,  creditor 
and  debtor,  is  that  in  1897  the  creditor  balance 
was  double  that  of  the  debtor  balance.  In 
1909  the  debtor  balance  exceeded  by  almost 
PlOO,000,000  the  creditor  balance,  an  alarming 
preponderance.  And  well  might  Limantour 
have  insisted  upon  a  clarifying  of  these  ac- 
counts. They  were,  indeed,  at  this  time  com- 
posed of  a  number  of  different  items,  which 
urgently  deserved  segregation.  It  was  but 
natural  that  the  banks  should  hide  as  far  as 
possible  in  current  creditor  all  demand  obliga- 
tions, in  order  to  hedge  about  the  margins  pro- 
tecting their  note  circulation.  But  a  casual 
examination  would  have  discovered  the  fact 
that  the  banks  were  practising  a  deceptive 
and  dangerous  expedient,  which  eventually, 
had  it  gone  uncurbed,  might  have  led  to  a 
precipitate  and  fatal  termination. 

It  was  clearly  Senor  Limantour's  purpose  to 
insist  on  a  general  renovation  in  the  classifi- 
cation of  accounts,  and  on  a  stricter  adherence 
to  certain  fundamental  principles  which  had 
borne  excellent  fruit  in  the  experience  of  the 
United  States.  He  was  driving  at  one  of  the 

183 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

most  dangerous  activities  of  the  banks,  when 
he  wrote  the  following: 

This  department,  in  its  circular  to  banks  of  February 
10th  last,  dwelt  at  length  on  the  desirability  of  encourag- 
ing deposits  without  interest;  it  also  explained  the  dan- 
gers to  which  a  bank  exposes  itself  by  allowing  a  high 
rate  of  interest,  especially  on  small  deposits.  One  of 
the  most  efficacious  means  whereby  deposits  without 
interest  may  be  encouraged  is  to  give  such  deposits  a 
privileged  status  in  the  event  of  the  bank's  liquidation, 
laying  down  that  they  must  be  paid  immediately  after 
the  bank-notes  and  cash  bonds,  and  in  preference  to  all 
other  claims.  The  clause  inserted  for  this  purpose  is 
manifestly  just,  for  it  does  not  seem  fair  that  funds  which 
are  attracted  to  a  bank  by  the  inducement  of  high  interest 
should  be  on  the  same  footing  as  deposits  made  as  such, 
without  any  expectation  of  profit  to  be  derived  therefrom. 

High  considerations  of  morality  demand  the  amend- 
ment of  Article  III  of  the  Banking  law,  in  such  manner 
as  still  further  to  restrict  the  rights  of  members  of 
boards  of  directors  of  banks  to  borrow  from  the  insti- 
tutions which  they  administer.  The  bill,  therefore, 
provides  that  the  legal  restriction  applies  not  only  to 
directors  personally,  but  to  collective  and  silent  partner- 
ships in  which  they  are  interested;  the  amount  of  the 
collateral,  which  must  be  gilt-edged,  required  to  be 
given  by  borrowing  directors  or  by  concerns  in  which 
they  are  interested  is  determined;  and  finally,  proper 
sanctions  are  created  to  deal  with  infringements  of  the 
law  in  these  particulars. 

Though  the  data  contained  in  the  monthly  balance- 
sheets  published  by  the  banks  are  very  full,  they  prove 
in  many  cases  insufficient,  for  there  are  certain  accounts 

184 


EVE  OF  THE  MADERO  REVOLUTION 

of  an  Indeterminate  character,  of  which  the  figures  are 
apt  to  become  swelled  in  such  manner  as  to  prevent  a 
proper  understanding  of  the  bank's  situation.  The  ad- 
ministration of  the  banks  ought  to  be  so  clear  as  to 
enable  their  published  balances  to  give  the  public — 
and  by  the  public  is  meant  not  only  the  specialists,  but 
the  mass  of  the  people — a  sufficiently  precise  idea  of  their 
standing  without  having  to  undertake  a  laborious  study 
of  their  documents  and  books.  With  this  object  in  view, 
the  bill  lays  down  that  the  balance-sheet  of  the  banks 
must  contain  numerous  data  which  do  not  at  present 
figure  in  those  statements,  and  it  is  proposed  that  the 
Department  of  Finance  be  empowered  to  demand  the 
amplification  of  such  data  whenever  it  sees  fit. 

As  we  have  seen,  banks  of  all  types  were 
involved  in  this  threshing  -  out  -  of  -  deposits 
business.  In  Limantour's  view,  banks  had 
become  prone  to  look  upon  all  deposits  as  per- 
manent investments,  even  as  their  clients  had 
come  to  look  upon  all  loans  as  though  made  in 
perpetuity.  He  had  attacked  in  a  vulnerable 
part;  and  it  would  have  been  interesting  to 
have  seen  how  far  the  reform  might  have  been 
carried.  The  heart  and  vitals  of  the  Mexican 
system  had  been  marked  for  summary  readjust- 
ment. But  soon  all  plans  were  to  be  frustrated. 

The  condition  of  the  auxiliary  banks  is  shown 
in  the  following  table,  covering  the  years  from 
1899  to  1909,  inclusive— the  figures  are  in  pesos  i1 

1  Boletin  de  Estadlstica  Fiscal,  Fiscal  Year  1908-09,  No.  340,  pp. 
1842-243;  240-247. 

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EVE  OF  THE  MADERO  REVOLUTION 

In  ten  years  the  paid-in  capital  invested  in 
these  auxiliary  institutions  had  grown  from 
P6,000,000  to  P47,800,000;  the  reserve  funds 
to  P6,888,117;  the  grand  totals  to  P128,375,032. 
The  consolidated  statement  discloses  possibly 
a  too  feverish  development.  The  liabilities  of 
the  banks  on  the  score  of  demand  and  time 
deposits  and  bonds  in  circulation  were  not  suffi- 
ciently safeguarded  by  cash  reserves.  Besides, 
it  is  entirely  probable  that  the  banks  had 
assumed  in  their  current  accounts  creditor  ob- 
ligations which  could  not  at  all  have  been 
counterbalanced  through  corresponding  con- 
tractions in  the  current  accounts  debtor.  The 
banks  disclosed,  too,  a  tendency  to  encumber 
themselves  with  bonds  and  stocks,  considerable 
quotas  of  which  were  likely  in  the  end  to  have 
proved  slow  or  worthless  assets.  This  was  re- 
vealed clearly  in  the  case  of  the  Banco  Central, 
which  developed  two-thirds  of  the  totals  car- 
ried in  the  resume. 

The  condition  of  this  bank  in  June,  1909, 
was  anything  but  happy.  While  its  capital 
had  grown  from  P6,000,000  to  P30,000,000,  its 
surplus  to  P6,500,000,  its  liabilities  had  not 
lagged  behind.  What  with  demand  deposits  of 
P8,700,000,  with  time  deposits  of  P6,400,000, 
with  bonds  in  circulation  of  P5, 500,000,  the 
slender  cash  resources  of  P3,500,000  were  in- 

187 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

significant  enough,  considering  its  standing  as 
a  reserve  institution.  The  accounts  creditor 
and  debtor,  so  far  as  they  appeared  on  the  sur- 
face, practically  washed  one  another,  but  the 
bond  and  stock  account  of  the  bank  reaching 
P9,769,000  can  hardly  be  said  to  have  been 
a  healthful  sign.  It  showed  in  its  portfolio 
discounted  notes  totaling  P13,649,844,  with 
secured  loans  reaching  P22,590,362.  This  last 
item  disclosed  the  extraordinary  case  of  having 
grown  in  two  years  from  P3,791,915  to  the  sum 
just  given,  due  to  the  exigencies  of  the  times 
— and  due,  further,  to  the  intervention  of  the 
government,  through  suggesting  the  making  of 
certain  loans.  The  suggestion  was  tantamount 
to  an  order.  Nor  might  these  bad  loans  be 
kept  under  cover.  Soon  it  became  known  that 
the  Banco  Central  had  absorbed  a  lot  of  worth- 
less paper,  and  that  its  capital  had  been  seri- 
ously impaired.1 

The  progress  and  place  in  the  Mexican  bank 
firmament  of  the  mortgage  banks  is  reflected 
in  the  following  table. 2 

The  Banco  Internacional  e  Hipotecario  de 
Mexico  and  the  Banco  Agricola  e  Hipotecario 
de  Mexico  completely  dominated  in  this  field. 
They  had  bounded  forward  with  a  momentum 

1  Boletin  de  Estadistica  Fiscal,  Fiscal  Year,  1908-09,  No.  340,  pp. 
5240-247.  2  Ibid.,  p.  233. 

188 


EVE  OF  THE  MADERO  REVOLUTION 


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189 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

easily  calculated  to  bring  them  to  grief.  The 
Banco  Agricola,  on  the  25th  of  January,  1908, 
for  reasons  of  its  own,  changed  its  title  to 
Banco  Hipotecario  de  Credito  Territorial  Mexi- 
cano,  and  as  such  has  continued  to  operate. 
This  bank,  in  1907,  launched  an  extravagant 
campaign,  and  in  the  course  of  two  years  suc- 
ceeded in  increasing  its  bonds  in  circulation 
from  P3,901,800  to  P16,769,800.  With  a  capi- 
tal and  reserve  of  P5,500,000,  by  June  30,  1909, 
its  liabilities  had  grown  to  P25,353,821. 

As  for  the  Banco  Internacional,  with  re- 
formed charter  of  1887,  its  development  had 
been  more  logical.  With  a  capital  of  P5,000,000 
and  a  surplus  of  more  than  P500,000,  it  had 
by  degrees  over  the  years  come  to  a  point  of 
circulating  bonds  in  a  total  of  Pi 6,000,000.  It 
had  developed  a  local  clientele,  which  rendered 
its  position  fairly  safe;  and  the  proof  of  this 
lies  in  the  fact  that,  while  it  is  to-day  in  a  sense 
interdicted  by  the  Mexican  government,  it  has 
not  been  put  into  liquidation. 

The  problem  of  the  mortgage  bank  from  the 
first  was  one  which  gave  President  Diaz  much 
concern,  as  well  as  his  Minister,  Limantour. 
Over  and  over  again  they  returned  to  attempt 
its  solution.  They  knew  perfectly  that  the 
small  Mexican  farmer  in  the  outlying  districts 
was  oppressed  by  the  country  merchant  and 

190 


EVE  OF  THE  MADERO  REVOLUTION 

robbed  by  the  extortionate  money-lender.  They 
knew  how  hopelessly  many  of  them  struggled 
to  escape  the  thraldom  to  which  they  had  been 
committed  through  inability  in  many  cases  to 
finance  their  landholdings,  and  in  many  in- 
stances to  finance  themselves  for  even  a  short 
term  in  bringing  their  crops  to  harvest. 

The  need  of  a  rural  credit  system — one  cal- 
culated to  reach  the  small  farmer — was  ad- 
mitted to  be  pressing,  and  President  Diaz 
appointed  a  commission  to  report  on  plans; 
but  the  commission — composed  of  Casasus, 
Limantour,  Braniff,  Robles,  and  Marcasusa — 
found  itself  hopelessly  at  odds,  each  urging  a 
particular  scheme.  They  were  stalemated; 
first,  on  account  of  the  inherent  difficulties  of 
the  problem  and  their  own  failure  to  reach  a 
common  finding;  secondly,  because  of  the  in- 
terference of  the  banks.  Further  than  this,  the 
charge  has  been  made — and  with  much  show 
of  truth — that  the  intervention  of  some  of  the 
political  figures  behind  the  seat  of  Diaz  toppled 
over  the  plan  for  the  creation  of  rural  banks. 

Instead,  there  came  into  existence,  with 
charter  dated  September  3, 1908,  the  anomalous 
Caja  de  Prestamos  para  Obras  de  Irrigacion, 
etc.  It  had  been  authorized  by  President 
Diaz  in  a  decree  of  June  17th,  and  the  warrant 
for  its  creation  had  been  embodied  in  Mexican 

191 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

law.1  It  was  organized  by  the  Banco  Nacional, 
Banco  de  Londres,  Banco  Central  Mexicano, 
and  the  Banco  Mexicano  de  Comercio  e  In- 
dustria,  with  a  capital  of  P10,000,000,  and 
chartered  for  fifty  years.  It  was  empowered  to 
loan  on  real  estate,  to  buy  and  sell  bonds,  to 
issue  drafts;  and,  lastly,  it  brought  the  govern- 
ment to  agree  to  guarantee  as  to  principal  and 
interest  all  bonds  which  the  Caja  might  issue! 
The  government,  for  its  part,  reserved  the  right 
to  veto  any  act  of  the  bank,  and  to  reject  any 
member  of  the  board  of  directors.2 

And  thus  was  launched  what  was  to  prove 
one  of  the  most  colossal  of  Mexican  failures — a 
failure  which  was  to  expose  the  Diaz  adminis- 
tration to  attack  for  deliberately  playing  into 
the  hands  of  reckless  friends.  It  is  not  to  be 
believed,  however,  that  the  great  President  or 
his  great  Minister  were  parties  to  any  such 
plan.  They  were  beaten  at  the  game. 

In  due  process  the  promising  Caja  de  Pres- 
tamos  was  created  with  a  view  to  extending 
credits  for  the  development  of  agriculture  and 
colonization  throughout  the  Republic.  This 
end  was  to  be  achieved  by  means  of  loans  to 
farmers  and  agricultural  concerns,  secured  by 
mortgage  on  lands  or  on  crops.  Diaz's  plan 

1  Caja  de  Prestamos,  etc.,  Mexico,  1909,  pp.  3-6. 

2  Memoria  de  Hacienda,  1908-09,  pp.  198-202. 

192 


EVE  OF  THE  MADERO  REVOLUTION 

to  aid  the  small  farmer,  however,  was  to  be 
wholly  frustrated  in  the  elaboration  of  the 
scheme.  The  Caja,  as  it  turned  out,  became 
merely  the  instrument  through  which  a  coterie 
of  officials  and  their  friends  exploited  their 
particular  enterprises,  and  ended,  as  might 
have  been  foreseen,  disastrously. 

The  balance-sheet  as  of  June  30,  1909,  less 
than  a  year  from  its  establishment,  shows  that 
the  Caja  found  demand  for  its  funds  and  that 
it  was  not  slow  to  advance  them.  The  details 
follow : * 

STATEMENT  OF  THE  CONDITION  OP  THE  CAJA  DE 
PRESTAMOS,  AS  OF  JUNE,  30,  1909 

RESOURCES 

Cash P  1,170,013.23 

Results  from  bond  operations 5,695,935.24 

Deposits  in  home  and  foreign  banks.  20,716,001.09 

Investments  in  stocks  and  bonds 8,870,748.19 

Mortgage  loans 11,981,315.56 

Mortgage  and  secured  loans 4,600,000.00 

Loans  carrying  bank  indorsement. . .  7,217,559.59 

General  expenses 59,274.08 

Divers  debtors 18,813.12 

Expenditures  on  installation 6,417.95 

Furniture  and  fixtures 8,544.07 


Total P60,344,622.12 

1  Boletin  de  Eatadistica  Fiscal,  Fiscal  Year  1908-09,  No.  340.  p.  1257. 

193 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

LIABILITIES 

Capital P10,000,000.00 

Four-and-a-half-per-cent.  gold  bonds  50,000,000.00 

Interest 330,677.79 

Divers  creditors 13,944.33 


Total P60,344,622.12 

With  its  capital  of  P10,000,000  and  P50,000,- 
000  of  gold  bonds  guaranteed  as  to  principal 
and  interest  by  the  Mexican  government,  it 
opened  its  doors  most  auspiciously.  In  the 
short  space  of  a  few  months  to  have  loaned 
more  than  P30,000,000  was,  indeed,  a  ques- 
tionable achievement.  But  this  record  was  to 
be  eclipsed,  as  we  shall  see.  On  good  authority 
it  is  asserted  that  the  loans  made  by  the  Caja 
were  sound  in  the  original  instance.  Some  of 
those  negotiated  at  a  later  date,  however,  were 
unsound.  At  the  present  time  it  is  clear  that 
the  Caja  de  Prestamos  has  suffered  great,  even 
irreparable,  losses  through  the  inroads  of  the 
Revolution — losses  which  stand  out  in  contrast 
to  the  worthless  loans  placed  on  the  books 
with  due  deliberation. 


XIV 

FIRST   EFFECTS  OF  THE  REVOLUTION 

THE  year  1910 — the  centenary  of  the  open- 
ing of  the  great  struggle  for  Mexican  in- 
dependence— found  the  country  in  a  state  of 
unrest.  The  transition  from  a  silver  to  a  gold 
standard — which,  on  the  surface,  appeared  to 
have  been  made  without  a  ripple  of  disturbance 
—was  of  grave  significance.  Social  and  indus- 
trial demoralizations  had  spread  apace.  The 
country  from  end  to  end  had  been  drained  of 
its  silver,  partly  through  the  attitude  of  the 
government  in  closing  the  mints  and  partly 
through  the  operation  of  the  law  of  demand. 
The  price  of  silver  in  terms  of  gold  had  risen 
phenomenally — or  else,  as  one  chooses  to  regard 
it — gold  had  fallen  in  terms  of  silver.1 

1  The  following  table  shows  the  coinage  movement  over  six  years, 
ending  June  30,  1910.    (Memoria  de  Hacienda,  1910-11,  p.  246.) 

COINAGE  TABLE 

Year  Silver  Gold 

1904-05 P      350,000  P         3,300 

1905-06 5,079,000  41,776,500 

1906-07 23,367,924  23,250,000 

1907-08 7,403,619  16,600,000 

1908-09 6,528,000  1,760,000 

1909-10 2,884,000  5,010,000 

P45.612.543  P88,399,800 

14  195 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

During  these  six  intense  years  the  coinage 
of  gold  and  silver  totaled  P134,005,743.  From 
May,  1905,  to  June  30,  1909,  silver  pesos  were 
exported  in  a  total  of  P86,073,305;  gold,  P3,560. 
In  other  words,  the  silver  exports  swept  clear 
the  tills  for  the  years  indicated  and  made  in- 
roads besides  into  the  silver  stocks  of  the  coun- 
try to  the  tune  of  P40,000,000.1  While  gold 
came  in  to  replace  the  white  metal,  and  slightly 
to  overtally  it,  it  was  impossible  to  give  it  the 
currency  of  the  silver  coins.  The  country  at 
large  was  stripped,  and  the  banks,  deprived  of 
silver,  were  forced  to  hoard  the  gold  which  came 
from  the  mints  as  well  as  that  which  flowed  in 
to  settle  the  balance  against  purchases  of  silver 
— a  hoarding  process  rendered  necessary  if  the 
note  circulation  of  the  banks  was  to  have  ade- 
quate metallic  protection. 

Not  only  were  bank  reserves  and  the  paper 
circulation  of  the  country  involved  in  the  re- 
organization; the  matter  of  maintaining  foreign 
exchanges  came  sharply  to  the  fore.  The  world 
panic  had  also  been  a  factor  in  working  these 
confusions.  The  support  which  the  Comision 
de  Cambios  had  been  able  to  render,  while  im- 
portant, failed  in  1908  to  be  adequate  and  the 
government  had  been  forced  to  borrow  abroad. 
The  Banque  de  Paris  et  Pays  Bas  loaned  Mexico 

1  Memoria  de  Hacienda,  1910-11,  pp.  244-245 

196 


FIRST  EFFECTS  OF  THE  REVOLUTION 

25,000,000  francs,  netting  P9,652,509,  which 
materially  helped  the  situation.  But  things 
in  all  avenues  of  business  were  going  badly. 

"Because  of  the  persistent  scarcity  of  drafts 
on  foreign  countries,"  wrote  Limantour,  in  the 
spring  of  1908,  to  the  Comision  de  Cambios,1 
"a  situation  brought  about  partly  through  the 
low  price  of  our  principal  products  of  export 
as  well  as  through  the  small  sum  of  foreign 
capital  coming  in  for  investment — conditions 
throughout  the  country  are  serious."  There 
was  lack  of  capital,  no  sales  of  securities,  and 
poor  collections  of  debts. 

The  government  was  not  blind  to  the  situ- 
ation, and  had  early  put  its  chief  energies  to 
the  coining  of  the  toston,  or  the  50-centavo 
piece.  Up  to  June  30,  1908,  these  were  pro- 
duced in  a  total  of  P26,830,6 19.50;  20-centavo 
pieces,  P3,846,923.80;  and  10-centavo  pieces, 
Pl,823,000. 

The  new  monetary  law  had  been  wisely  drawn 
in  that,  while  it  had  kept  the  weight  of  the 
silver  peso  unchanged,  the  subsidiary  coins  had 
been  made  lighter  relative  to  their  legal  values 
— viz.,  20  grams  to  the  peso,  and  with  a  fine- 
ness of  .8  as  compared  with  .902  for  the  silver 
peso. 

By  the  end  of  the  fiscal  year,  June  30,  1908, 

1  Memoria  de  Hacienda,  1907-08,  pp.  306-307. 

197 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

the  Comision  de  Cambios  y  Moneda — which 
had  opened  for  operation  in  1905  with  Pi 0,000,- 
000 — found  itself  in  possession  of  a  net  fund 
totaling  P17,100,340,  made  up  of  P6,100,000 
gold,  P6, 104, 169  deposited  with  banks,  and 
P3,000,000  silver.1  The  Comision  had,  to  all 
intents  and  purposes,  succeeded  in  "stabilizing" 
the  exchanges  and  had  acted  as  handmaiden  to 
the  banks  in  their  efforts  to  meet  the  require- 
ments of  the  reserve  law.  But  nothing  could 
take  the  place  of  the  silver  coins  in  the  pockets 
of  the  people.  Bank-notes,  the  smallest  de- 
nominations being  of  P5,  were  obviously  not 
fitted  to  the  needs  of  the  laborer  and  the  small 
wage-earner;  nor  were  gold  coins  available,  for 
bankers  would  not  pay  them  out,  knowing  that, 
once  in  circulation,  they  disappeared  as  com- 
pletely as  if  by  magic.  And  as  for  there  having 
been  achieved  a  general  "stabilizing"  of  prices, 
which  had  been  the  professed  end  in  view, 
nothing  could  have  been  farther  from  the  facts. 
The  great  monetary  reform  of  1905  never  suc- 
ceeded in  stabilizing  the  value  of  gold  in  silver 
money  in  Mexico,  and  naturally  all  other  prod- 
ucts were  in  similar  plight.  This  case  has  been 
established  beyond  peradventure  by  Francisco 
B.  Lavalle,  the  distinguished  Mexican  publicist.2 

1  Conant,  Banking  System  of  Mexico,  p.  73. 

2  El  Demfcrata,  September  13,  1917;  etc. 


FIRST  EFFECTS  OF  THE  REVOLUTION 

In  the  United  States  better  success  has  at- 
tended our  efforts,  because,  as  Conant  has 
shown,  we  have  been  able  to  limit  the  coinage 
of  silver,  and  have  thereby  made  it  possible  to 
effect  exchanges  with  respect  to  gold.  But 
even  here,  during  the  World  War,  all  the  tables 
were  overturned — we  were  not  able  to  carry 
on  normal  operations  of  exchange,  because  of 
the  mobilizing  of  gold  reserves;  hence  the  wild 
fluctuations  ruling  in  the  precious-metals  mar- 
kets— with  corresponding  dislocations  in  price 
arrangements.  And  here  lies  a  field  in  which 
economists  still  wander  with  hazy  concepts. 
The  confused  elements  entering  into  the  con- 
sideration of  prices  and  standards  in  their  local 
and  international  relations  present  the  most 
profound  of  economic  problems. 

With  respect  to  Mexico,  we  know  that  in 
practical  operation  things  worked  out  badly 
for  the  theorists.  The  definite  formulas  were 
disappointing  in  results.  And  the  winter  of 
1909-10  bore  witness  to  wide-spread  discontent. 
To  add  to  troubles  there  had  been  a  failure  of 
the  corn  crop,  and  the  government  was  com- 
pelled to  import  and  distribute  great  quantities 
of  grain  in  an  effort  to  allay  the  outspoken 
hostility  of  the  masses. 

The  banking  situation  reflected  substantially 
prevailing  conditions.  A  decided  wave  of  re- 

199 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

frenchmen  t  was  sweeping  over  the  land;  and 
the  uncertainties  were  intensified  when,  in 
February,  1910,  the  United  States  Banking 
Company — a  private  corporation  capitalized 
at  Pi, 000,000 — closed  its  doors.  Incipient  runs 
were  started  on  several  banks,  but  they  did 
not  reach  disastrous  proportions. 

However,  despite  the  untoward  conditions, 
President  Diaz  moved  ahead  on  his  program  to 
celebrate  the  centenary  of  his  country's  in- 
dependence— and  to  make  that  celebration  the 
most  splendid  his  people  had  known.  Nothing 
was  to  be  spared — moneys  were  to  be  lavished 
in  order  that  fitting  emphasis  should  be  laid 
on  the  progress  of  the  nation — progress  largely 
due  to  the  genius  of  Diaz  himself. 

In  fine,  the  fall  of  1910  found  Mexico  be- 
decked and  celebrating  with  a  degree  of  en- 
thusiasm the  achievement  of  independence. 
But  under  the  outward  show  was  seething  dis- 
content; and  while  still  the  plaudits  were  ring- 
ing in  the  streets  of  the  Capital  the  grito  of  the 
Revolution  had  been  heard  along  the  Rio 
Grande. 

By  the  end  of  1910  the  economic  situation  of 
the  country  had  materially  turned  for  the  worse. 
Over  the  whole  year  there  had  been  a  partial 
paralysis  of  business,  which  the  transitory 
stimulus  of  the  Centennial  in  the  Capital  only 

200 


FIRST  EFFECTS  OF  THE  REVOLUTION 

tended  to  emphasize.  The  banks  naturally 
responded  to  changed  conditions.  Some  in- 
stitutions showed  increased  deposits,  which 
clearly  resulted  from  liquidation  of  credit  lines; 
and  the  banks,  through  necessity,  ceased  allow- 
ing interest  on  deposits.  Furthermore,  the 
banks  began  to  curtail  their  extensions  of 
credits  and  to  call  loans. 

The  deposits  of  the  Banco  Nacional  reached 
their  maximum  in  P47,000,000.  Henceforward, 
it  was  to  be  recession.  By  1913  they  had  fallen 
to  P18,000,000.  The  Banco  Nacional— com- 
pletely dominating  the  situation — although  it 
had  arranged  in  1910  for  the  use  of  large  Euro- 
pean credits,  now  restricted  itself  in  their  em- 
ployment. It  had,  however,  borrowed  ap- 
proximately P13,000,000,  which  soon  it  set 
about  repaying,  the  account  being  finally  set- 
tled in  1913. 

The  Banco  Central  had  called  for  assistance 
as  early  as  1909,  and  both  the  Caja  de  Presta- 
mos  and  the  Comision  had  responded.  The 
condition  of  the  bank  was  now  serious.  Through 
the  operations  of  a  subsidiary  company,  called 
Compania  Bancaria  de  Fomento,  it  suffered 
tremendous  losses.  The  Bancaria  Company 
had  engaged  in  promoting  public  works,  such 
as  street-paving  and  electric-lighting;  and  on 
account  of  its  inner  position  and  the  political 

201 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

influence  it  could  bring  to  bear  on  city  and 
state  officials,  choice  contracts  were  developed. 
These  it  farmed  out.  For  a  time  it  was  suc- 
cessful, and  through  excellent  connections,  it 
sold  its  paper  extensively  in  European  mar- 
kets. But  eventually  losses  came  thick  and 
fast.  So  thoroughly  vicious  were  some  of  its 
contracts  that  presently,  through  repudiations, 
the  Bancaria  found  itself  bankrupt.  A  case 
by  way  of  illustration  may  be  cited  in  the 
water-works  contract  with  Torreon.  The  cost 
of  construction  was  approximately  P4, 000,000; 
but  in  the  settlement,  bonds  were  secured 
with  the  guaranty  of  the  state  on  a  total  of 
P40,000,000.  Small  wonder  that  repudiations 
followed. 

The  Banco  Central  was  involved  through 
its  financing  the  Bancaria.  It  handled  the 
securities  and  unloaded  them  in  foreign  mar- 
kets; but  when  the  time  came  that  sales  could 
no  longer  be  made  the  end  was  at  hand,  for 
the  Banco  Central  had  made  heavy  advances  to 
the  Bancaria  Company.  And  it  must  be  borne 
in  mind  that  the  state  banks  were  closely 
affiliated  with  the  Banco  Central  not  only 
through  agency  relations,  but  through  the  more 
intimate  one  of  stockholder.  Therefore,  the 
failure  of  the  Banco  Central  was  a  thing  to 
be  averted  at  all  costs.  For  the  time  being, 

303 


FIRST  EFFECTS  OF  THE  REVOLUTION 

the  bank  was  supported;  but  we  shall  see  that 
it  was  badly  involved. 

The  mortgage  banks  were  managing  to  hold 
their  own  with  only  slight  changes ;  but  already 
the  auxiliary  banks  were  weakening.  By  the 
end  of  1910  they  showed  a  decrease  in  their 
assets  of  P4,765,748. 

With  the  turn  of  the  year  1911  it  became 
evident  that  the  revolution  headed  by  Fran- 
cisco I.  Madero  was  a  serious  matter,  and  that 
it  was  to  be  waged  unscrupulously  was  mani- 
fest when  the  early  reports  came  in  of  revolu- 
tionary successes.  For  the  banks  in  the  capt- 
ured territory  it  meant  either  partial  or  total 
destruction— destruction  by  virtue  of  looting 
or  through  dissipation  of  the  assets  upon  which 
they  rested. 

Madero  was  not  concerned  over  the  wrecks 
in  his  path.  He  levied  upon  the  banks  with 
callous  hand,  despite  the  fact  that  his  family 
owed  the  credit  institutions  of  the  country 
about  PSjOOOjOOO;1  and  despite  the  further 
fact  that  at  the  instance  of  Limantour  the 
Banco  de  Londres  lent  Madero  P£10,000  shortly 
before  he  crossed  the  Rio  Grande.  As  he  pro- 
gressed he  extracted  from  the  banks  in  Tor- 

1  This  statement  is  made  on  the  basis  of  a  written  memorandum 
given  me  by  a  prominent  banker,  who  sat  in  a  conference  of  bankers 
called  expressly  to  consider  the  indebtedness  of  the  Madero  family 
just  prior  to  the  outbreak  of  the  revolution. 

303 


PRESENT  AND  PAST   BANKING   IN  MEXICO 

reon,  Durango,  Mazatlan,  and  San  Luis  Potosi 
such  sums  as  he  needed  to  pay  his  troops;  but, 
be  it  said  to  his  credit,  at  the  time  of  his  over- 
throw the  Mexican  Congress  was  considering 
a  bill  for  the  reimbursal  of  the  robbed  institu- 
tions. In  the  confusion  of  the  tunes,  however, 
all  papers  were  lost,  nor  has  action  since  been 
taken  in  the  premises. 

In  May,  1911,  the  triumph  of  the  revolution 
was  admitted  with  the  flight  of  President  Diaz 
from  the  capital.  While  Madero  did  not  at  once 
assume  authority,  his  will,  nevertheless,  was 
operative.  He  ^ealized  the  situation  of  the  coun- 
try and  that  its  economic  fate  depended  upon 
its  foreign  relations.  He  and  his  advisers  set 
studiously  about  explaining  the  revolution  and 
what  they  proposed  to  do.  Foreign  moneys  were 
absolutely  essential  in  the  presentlstate  of  affairs. 

In  the  mean  time,  banking  institutions  were 
taking  courage,  in  the  hope  that  the  worst  was 
over.  The  balance-sheet  of  the  mortgage  banks 
for  the  years  1911  and  1912  showed  compara- 
tively little  change.  The  capital  stock  remained 
at  P12,000,000.  The  surplus  had  increased 
P250,000;  demand  deposits,  P808,192.  Bonds 
in  circulation  had  increased  by  Pi, 563,600. 
On  the  other  side  of  the  ledger  the  chief  item 
of  importance  had  been  the  swelling  of  the 
mortgage-loan  account  by  more  than  P5,000,- 

204 


FIRST  EFFECTS  OF  THE  REVOLUTION 

000.  Cash  and  notes  available  for  current 
uses  amounted  to  but  P2,326,188,  which,  not- 
withstanding an  increased  liability  account, 
had  been  reduced  below  the  limit  of  1910.  As 
an  offset,  however,  public  funds  and  immedi- 
ately negotiable  securities  had  been  augmented 
by  P250,000,  the  total  standing  on  June  30, 
1912,  at  P3,770,245. 

With  respect  to  the  auxiliary  banks,  during 
1911-12  there  were  no  significant  changes,  save 
a  slight  loss  in  cash  and  an  increase  of  ap- 
proximately P4,500,000  in  loans  on  collateral 
account.  There  had  been  an  expansion  in 
every  credit  department  which  was  counter- 
balanced by  an  increase  of  P2,000,000  of  capi- 
tal, and  of  about  P750,000  in  the  reserve  and 
emergency  funds.  The  total  assets  reached  in 
June,  1912,  P150,678,708. 

The  Banco  Central,  pre-eminent  among  this 
group,  had  been  steadily  losing  ground,  as  may 
be  recalled.  The  government  interested  itself 
and  invited  a  conference  of  local  bankers.  An 
analysis  of  its  balances  showed  the  institution 
to  be  indeed  in  a  precarious  state,  and  the 
Banco  de  Londres  and  the  Banco  Nacional 
were  brought  each  to  advance  the  Central 
Pi, 350,000  on  a  secured  basis;  the  Union  Pari- 
sienne  made  a  similar  advance,  unsecured,  and 
the  debt  is  presumed  to  be  still  unpaid. 

205 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

Madero  became  President  on  November  6, 
1911,  and  from  the  first  his  was  a  desperate 
game.  Once  the  barriers  were  down  it  became 
easy  enough  to  start  revolutions — and  the  role 
he  had  essayed  so  successfully  was  taken  up  by 
various  leaders.  The  moneys  which  Limantour 
had  left  in  the  Treasury— P64,000,000— were  in 
the  early  stages  increased  under  his  successor, 
Ernesto  Madero.  But  soon  they  stood  as  fol- 
lows, according  to  a  Treasury  statement: 

In  European  banks Pi  1,270,000 

In  Banco  Nacional  de  Mexico 14,500,000 

In  hands  of  Monetary  Commission.  18,800,000 

In  the  National  Treasury  coffers ....  12,300,000 

In  government  offices 5,700,000 

In  collectible  bills  or  accounts 500,000 

Total P63,070,000 

Under  the  stress  of  suppressing  revolutionary 
groups,  the  Treasury  resources  rapidly  de- 
clined; and  by  the  spring  of  1912  borrowing 
operations  were  instituted,  P20,000,000  being 
secured  in  June  from  Speyer  &  Co.  of 
New  York.1  By  the  fall  the  Minister  of  Haci- 
enda was  forced  to  inform  Congress  that  their 
appropriations  far  exceeded  his  ability  to  pay. 
The  Diario  Oficial  of  October  4th  indicates 
that  already  the  reserves  had  been  reduced 
to  P42,000,000,  which  were  barely  ample  for 

1  Diario  Oficid,  120,  p.  471. 

206 


FIRST  EFFECTS  OF  THE  REVOLUTION 

operating  margins.1  As  further  evidence  of 
demoralization,  the  subsidiary  coins  of  the 
banks  of  the  country  fell  from  P4,657,915  in 
October,  1911,  to  P4,419,681  in  December  of 
the  next  year.2  Of  this  latter  total,  P2,501,299 
was  held  by  the  Banco  Nacional.  Nor  were 
withdrawals  restricted  to  fractional  coins.  All 
banks  were  being  subjected  to  pressure.  De- 
posits were  slowly  going  down  with  definite 
losses  of  cash,  indicating  plainly  that  fright 
was  afoot.  There  was  no  way  to  check  the 
spread  of  distrust,  but  the  government  of 
Madero,  slowly  slipping,  still  endeavored  to 
buttress  itself  by  borrowing  yet  another  P20,- 
000,000  of  Speyer  &  Co.  In  the  space 
of  a  little  more  than  a  year  the  available  re- 
serves in  the  Treasury — left  by  Limantour  in 
a  sum  of  P64,000,000,  plus  P40,000,000  raised 
in  New  York — had  been  spent,  endeavoring  to 
pacify  Mexico  and  to  carry  out  some  of  the 
wild  promises  made  by  Madero  to  the  revo- 
lutionists. 

The  end  of  the  Maderistas  was  in  sight.  In 
February,  1913,  fell  the  Cuartelazo,  and  Vic- 
toriano  Huerta  appeared  on  the  scene  and,  with 
characteristic  Mexican  sang-froid,  took  on  the 
role  of  dictator. 


1  Diario  Oficial,  122,  p.  345. 

2  Ibid.,  117,  p.  413;  124,  p.  409. 

307 


XV 

HUERTA  AND   THE  BANKS 

HUERTA'S  coup  d'etat  quite  shook  out  of 
the  Mexican  people  any  lingering  opti- 
mism. While  many  regarded  him  as  possibly 
a  savior,  reactionary  that  he  was,  they  rallied 
to  his  support  with  misgivings,  for  already  the 
storm  had  almost,  if  not  quite,  gone  beyond 
control.  This  doubt,  or  hope,  was  stilled, 
though,  when  the  edict  went  forth  from  the 
White  House  that  the  United  States  would 
none  of  Huerta,  who  was  both  usurper  and 
murderer,  for  President  Madero  had  not  only 
been  ousted  from  his  seat,  but  slain  in  the 
streets  of  the  capital! 

On  account  of  the  disorganizations  prevail- 
ing, the  revenues  of  the  country  were  now 
falling  far  below  the  needs  of  the  government 
and  Huerta  soon  was  hard  put  to  to  make  ends 
meet.  Accordingly  he  took  up  negotiations 
with  Paris  bankers  touching  a  £20,000,000 
loan,  which  had  been  authorized  in  May  of  the 
preceding  year.  Representatives  of  the  Banque 

208 


HUERTA  AND  THE  BANKS 

de  Paris  et  Pays  Bas  on  June  8th  agreed  to  take 
£6,000,000,  and  obtained  an  option  on  the  bal- 
ance. But  that  option  was  never  exercised. 

Prior  to  the  conclusion  of  this  loan,  in  the 
spring  of  1913,  the  flight  of  the  wealthy  from 
the  country  was  embarrassing  the  banks  through 
the  withdrawal  of  specie.  Something  had  to 
be  done;  so  May  1st  a  decree  was  issued,  levy- 
ing a  tax  of  10  per  cent,  on  gold  exports,  save 
that  shipped  by  the  Comision  de  Cambios.1 
This  tax,  however,  failed  to  stay  the  outflow, 
and  on  August  26th  a  decree  was  published 
prohibiting  the  export  of  silver  and  gold  coin.2 

The  monetary  situation  in  Mexico  reflected 
an  undercurrent  of  coming  disaster.  This  was 
signally  shown  in  the  exchange  situation.  Such 
a  demand,  indeed,  arose  for  credits  on  New 
York  that  the  rate  by  the  end  of  August  was 
quoted  at  $0.3620.  It  was  now  that  the  great 
outflow  of  silver  took  place — the  peso  fuerte 
ran  to  cover.  On  October  1st,  by  decree,  the 
demonetization  of  silver  coins  was  prohibited,3 
and  the  output  of  the  mint  was  ordered  in- 
creased. 

The  situation  grew  steadily  worse,  despite 
these  measures,  and  on  November  5th  Huerta 
was  brought  to  issue  a  far-reaching  decree. 
It  carried  the  announcement  that  the  following 

1  Diaria  Oficial,  120,  p.  4.       2  Ibid.,  127,  p.  580.       3  Ibid.,  128,  p.  340. 

209 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

things  would,  for  one  year,  pass  as  unlimited 
legal  tender: 

1.  The  silver  tost6n,  or  50-centavo  piece. 

2.  The  notes  of  the  Banco  Nacional  and  the  Banco  de 
Londres. 

3.  The  notes  of  state  banks,  within  their  several  re- 
spective states. 

While  the  decree  had  provided  that  the  Banco 
Nacional  and  the  Banco  de  Londres  should  keep 
metallic  reserves  against  outstanding  notes, 
their  redemption  was  waived  for  a  year;  and 
the  same  rule  applied  to  the  notes  of  state 
banks.1 

The  circular  letter  issued  by  Huerta  three 
days  later  to  bank  supervisors  to  see  that  the 
reserves  of  the  banks  were  kept  intact 2  served 
in  no  whit  to  allay  the  storm  that  arose. 
Almost  at  once  the  silver  peso  and  gold  coin 
disappeared.  Those  not  exported  were  hidden 
with  despatch.  Business  was  prostrate.  The 
circulating  medium  was  limited  to  subsidiary 
coins  and  to  bank-notes,  the  smallest  denom- 
ination of  which  was  P5.  But  these  were  in- 
adequate. In  the  emergency,  Huerta,  on  No- 
vember 19th,  authorized  the  issue  of  notes  in 
denominations  of  Pi  and  P2.3 

In  the  mean  time  the  Banco  Central,  the 

1  Diario  Oficial,  129,  p.  35.       *Ibid.,  129,  p.  91.       3  Ibid.,  129,  p.  162. 

210 


HUERTA  AND  THE  BANKS 

keystone  in  the  arch  of  the  state  banking  sys- 
tem, was  being  subjected  to  a  severe  pounding. 
In  1909,  it  will  be  recalled,  this  bank  had  begun 
to  show  the  effects  of  bad  management.  In 
June,  1913,  the  balance-sheet  showed  a  loss 
of  P7,800,000  in  capital  stock  account.  There 
was  also  a  loss  in  the  surplus  account.  De- 
mand deposits  had  fallen  by  P3,207,198,  and 
other  deposits  by  P2,024,621.  Cash  bonds  in 
circulation  were  up  to  P9, 01 6,000,  a  growth  of 
nearly  P5, 000,000  over  the  year.  There  had 
been  an  increase,  which  apparently  was  from 
borrowings,  in  the  sundry  creditors  account  of 
almost  P7,500,000.  On  the  other  hand,  the 
bank,  even  in  its  predicament,  had  not  been 
able  appreciably  to  reduce  its  outstanding 
credit  lines,  save  in  the  department  of  bills  dis- 
counted, which  showed  a  shrinkage  of  P4 ,625 ,895 . 

Later  in  the  summer  the  troubles  of  the 
Banco  Central  came  in  troops.  Under  pressure 
of  a  French  committee,  representing  large  for- 
eign shareholders,  the  capital  stock  at  a  stroke 
was  reduced  from  P30,000,000  to  PlO,000,000, 
in  order  to  cover  losses! 

In  the  fall  of  1913,  while  rumors  were  afloat 
touching  the  solidity  of  some  of  the  state  banks, 
what  amounted  to  a  panic  was  precipitated 
in  the  capital.  The  Banco  Central  was 
swamped  with  holders  of  notes  of  the  state 

15  211 


PRESENT  AND   PAST   BANKING   IN   MEXICO 

banks,  each  one  clamoring  for  the  redemption 
of  bills.  The  bearers  were  even  willing  to 
exchange  them  for  notes  of  the  Banco  Nacional 
or  the  Banco  de  Londres;  but  the  Banco  Cen- 
tral was  helpless  and  refused  to  redeem  notes 
of  institutions  which  had  not  on  deposit  suf- 
ficient funds  for  their  protection. 

Toward  the  end  of  December  the  direction 
of  the  attack  was  shifted,  and  the  Banco  de 
Londres  experienced  a  run  which  shortly  would 
have  prostrated  it  had  it  not  limited  cash  pay- 
ments to  P200. 

Huerta  now  took  a  final  step  forward,  and 
on  December  22d  declared  a  moratorium  to 
December  31st.  It  was  extended  by  him  from 
time  to  time.1  Carranza  has  since  continued 
the  operation  of  the  moratorium,  save  in  nar- 
row departments  where  the  government  has 
made  exception  under  its  Ley  de  Pagos. 

The  banking  institutions  of  the  country  tow- 
ard the  end  of  the  year  foresaw  immeasurable 
difficulties  coming  upon  them  through  the 
Revolution.  Tremors  of  revolution  shook  the 
country  in  all  its  avenues  of  life.  Panic  ex- 
isted in  its  incipient  stages.  Not  only  were  the 
banks  to  be  buffeted  by  the  public,  but  the 
attitude  of  the  government  was  still  an  un- 
known quantity,  so  far  as  ultimate  dispositions 

i  Diario  Oficial,  129,  p.  493;  130,  p.  7 

212 


HUERTA  AND  THE  BANKS 

were  concerned.  But  the  government,  if  favor 
were  curried,  might  prove  a  bulwark  to  sustain 
them  in  the  emergencies  of  the  moment.  And 
from  the  government's  point  of  view  the  banks 
might  be  of  a  deal  of  assistance  in  its  financial 
exigencies.  Uncertainties,  doubts,  and  fears 
were  abroad. 

Not  taking  advantage  of  the  moratorium 
declared  by  Huerta,  the  banks  remained  open 
and  made  believe  they  were  doing  business  as 
usual.  The  Banco  de  Londres,  however,  while 
carrying  on  the  routine  banking  transactions, 
continued  to  adhere  to  its  check  limit  of  P200 
as  a  maximum. 

On  January  6,  1914,  Huerta  qualifiedly  gave 
the  notes  of  the  state  banks  a  universal  legal- 
tender  status.  Coincident  therewith  he  ordered 
the  creation  of  a  special  fund  for  the  guarantee 
of  payment  of  all  such  notes.  This  fund  was  to 
be  created  through  the  payment  in  coin  by  the 
banks  of  an  annual  assessment  on  a  sliding 
scale.  Each  bank  was  to  pay  in  %  of  1  per 
cent,  of  its  authorized  emission  of  notes  up 
to  P5,000,000;  2/£  of  1  per  cent,  on  all  sums  ex- 
ceeding P5,000,000  up  to  P10,000,000;  %  of 
1  per  cent,  on  all  sums  falling  between  P10,- 
000,000  and  P20,000,000;  and  %  of  1  per  cent, 
for  all  sums  exceeding  P20,000,000.  Assess- 
ments were  to  be  paid  in  January  and  July, 

2*3 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

and  the  fund  was  to  be  supervised  by  four 
unpaid  commissioners,  two  of  whom  were  to 
be  chosen  by  the  state  banks,  one  by  the  clear- 
ing-house in  the  capital,  and  one  by  the  Haci- 
enda. The  fund  itself  was  to  be  deposited  with 
the  Banco  Nacional,  or  with  some  institution 
to  be  designated  by  the  Hacienda.1 

To  cap  these  far-reaching  dispensations,  on 
January  7, 1914,  Huerta  decreed  an  amendment 
to  Article  16  of  the  General  Law  of  Institutions 
of  Credit.  His  version  read: 2 

The  issue  of  bank  bills  shall  not  exceed  three  times  the 
paid-up  capital  stock,  nor  shall  it,  together  with  deposits 
payable  on  demand  or  subject  to  withdrawal  at  not  more 
than  three  days'  notice,  exceed  twice  the  holdings  of  the 
bank  in  cash  and  gold  and  silver  bullion;  nevertheless,  the 
Department  of  Finance  may  authori  ze  such  banks  as  request 
it  to  increase.i/teir  circulation  up  to  three  times  their  holdings. 

This  provision  did  not  affect  the  Banco  Na- 
cional, the  Banco  de  Londres,  the  Banco  de 
Nuevo  Leon,  for  their  concessions  carried 
this  very  limitation,  although  they  had  never 
availed  themselves  of  it.  But  it  did  affect 
the  other  banks,  and  while  it  was  not  revolu- 
tionary, it  created  alarm.  Technically,  however, 
the  new  order  did  not  mean  unsound  practices, 
for  the  ratio  of  three  paper  pesos  to  one  of 
metal  invoked  no  new  principle. 

1  Diana  Oficial,  130,  p.  52.  2  Ibid.,  p.  GO. 


HUERTA  AND  THE  BANKS 

Preliminary  to  issuing  his  decree,  Huerta 
had  called  a  meeting  of  the  bankers  of  the 
capital,  and  at  this  reunion  he  invited  their 
co-operation  in  putting  down  the  revolution 
headed  by  Carranza.  He  solicited  financial 
support.  The  bankers  replied  that  they  were 
already  burdened,  and  that  they  could  not 
take  over  the  £5,000,000  of  bonds  which  he 
offered,  being  a  portion  of  the  £20,000,000 
issue.  The  bankers  urged  the  thinness  of  re- 
serves against  circulation.  Then  it  was  he 
suggested  the  amendment,  providing  for  issues 
to  stand  at  three  of  notes  for  one  of  metallic, 
and  the  decree  above  cited  was  prepared. 
There  are  stories  as  to  threats  made  by  Huerta, 
but  it  is  believed  these  have  been  much  ex- 
aggerated. At  all  events,  the  bankers  finally 
agreed  to  handle  a  block  of  the  bonds.  Only 
two  foreign  banks  participated. 

It  will  be  remembered  that  this  program  was 
instituted  after  the  breaking  up  of  Congress 
and  Huerta's  assumption  of  dictatorial  powers. 
He  was  not  to  be  defeated.  So  he  moved  ahead, 
and  with  trifling  regard  to  the  reserve  status  of 
banks  the  quotas  were  assigned.  An  officer 
of  the  Banco  de  Londres  went  with  his  attorney 
to  the  Minister  of  Hacienda  to  protest  against 
the  allotment  fixed  on  that  institution,  where- 
upon he  was  arrested  and  the  Board  of  Directors 

215 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

of  the  bank  summoned  and  compelled  then  and 
there  to  approve  the  government's  measure. 

It  was  not  the  immediate  result  of  these 
decrees  which  upset  the  economic  tables,  for 
they  were  not  necessarily  ruinous — it  was  the 
fear  that  other  and  more  summary  measures 
were  in  reserve.  If  Huerta,  for  example,  could 
fix  a  limit  of  three  paper  pesos  for  one  peso  of 
specie  in  vault,  why  should  he  not  extend  that 
limit  to  four  or  ten  ?  If  he  should  fail  to  pacify  the 
country,  and  revolution  became  rampant,  where 
might  things  be  expected  to  end?  These  were 
the  matters  which  sent  panic  through  the  land. 
The  first  emission  of  P18,200,000 — against 
which  the  government  issued  bank-notes — was 
apportioned  as  follows: 

Banco  de  Londres  y  Mexico P3,000,000 

Banco Mexicano  de  Comercio  6  Industria         750,000 
Banco  Germanico  de  la  America  del  Sur         500,000 

Banco  Peninsular  Mexicano 250,000 

Banco  de  Jalisco 150,000 

Banco  Mercantil  de  Vera  Cruz 300,000 

Banco  de  Tamaulipas 100,000 

Banco  de  San  Luis  Potosi 55,000 

Banco  de  Aguascalientes 25,000 

Banco  del  Estado  de  Mexico 20,000 

Banco  de  Tabasco 50,000 

Banque  de  Paris  et  de  Pays  Bas 3,000,000 

Banco  Nacional  de  Mexico 4,496,500 

Sundry  firms 5,503,500 

Total P18,200,000 

216 


HUERTA  AND  THE  BANKS 

These  funds  brought  Huerta  some  relief — 
although  it  is  stated  that  much  of  it  went  to  the 
payment  of  old  debts — and  he  turned  savagely 
on  the  revolutionists  in  the  north  and  almost 
stamped  them  out.  Practically  the  only  op- 
ponent remaining  was  Carranza,  and  he  was 
driven  in  flight  almost  to  the  Rio  Grande;  but 
his  career  from  this  time  on  grows  in  im- 
portance. 

Carranza  left  no  doubt  in  the  minds  of  con- 
servatives how  he  felt  toward  them.  What 
Huerta  was  doing  in  the  capital  with  some  show 
of  authority  Carranza  was  surpassing  in  Du- 
rango,  Coahuila,  and  elsewhere.  Banks  every- 
where were  looked  upon  as  proper  prey.  Villa 
and  TJrbina,  agents  of  Carranza,  took  from  the 
Banco  de  Londres  in  Durango  P400,000  in  gold 
and  silver,  and  PlOO,000  in  bank-notes.  In 
Torreon,  Villa  took  all  the  cash  the  banks  had 
— also  their  bank-notes. 

Carranza  began  early  to  register  his  attitude 
toward  the  institutions  of  credit  of  the  country. 
On  December  6,  1913,  he  issued  his  Circular 
No.  7  making  heavy  requirements  of  the  banks 
in  the  territory  he  had  overrun.  At  this  time 
his  authority  was  limited,  but  on  February  18, 
1914,  he  issued  Circular  No.  8,  taking  over  in 
Nogales  the  branch  of  the  Banco  Nacional  and 

that  of  the  Banco  de  Sonora;  in  Hermosilla,  the 

217 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

parent  Banco  de  Sonora,  and  the  branches  of 
the  Banco  Nacional  and  Banco  Minero,  and 
the  Agency  of  the  Banco  Occidental.  Debtors 
to  these  institutions  were  ordered  to  suspend 
payments  until  these  banks  could  be  liquidated.1 
Huerta's  troubles  were  only  heightened  by 
coming  to  blows  with  the  United  States,  In 
April  the  occupation  of  Tampico  and  Vera 
Cruz  marked  the  end  of  him.  Nevertheless, 
he  struggled  on,  hoping  against  hope.  He  still 
had  recourse  to  funds  in  the  banks,  and  he  en- 
deavored to  support  them,  as  far  as  he  might, 
in  consonance  with  his  purposes.  But  things 
were  not  well  with  them.  The  mortgage  banks 
were  faring  badly — coupons  and  principal  of 
bonds  were  maturing,  and  he  was  brought  to 
issue  a  decree  on  May  16th,  suspending  service 
on  them,2  which  in  effect  created  a  moratorium. 
Next,  after  disposing  of  great  blocks  of  the 
£20,000,000  bond  issue — which  carried  as  se- 
curity 38  per  cent,  of  the  customs  dues — to 
foreign  and  New  York  bankers  to  satisfy  in- 
terest and  principal  accounts  of  the  public  and 
railroad  debts,  he  still  had  not  reached  the  end 
of  his  resources.  When  the  Paris  bankers  had 
declined  to  exercise  their  option  on  the  balance 
of  the  £20,000,000,  he  was  left  the  expedient 

1  Decretos,  Circulares,  etc.,  del  Gohierno  Constitucionalista.    Book  I, 
p.  208.  2  Diario  Oficial,  132,  p.  137. 

218 


HUERTA  AND  THE  BANKS 

of  forcing  them  upon  the  bankers,  as  before. 
The  banks  got  the  bonds  at  .90;  but  Huerta 
issued  notes  in  the  full  equivalent.  Here  was 
truly  a  most  anomalous  case — a  bankrupt  gov- 
ernment forcing  its  bonds  upon  the  banks  and 
itself  issuing  currency  against  them.  The  banks 
and  a  few  firms  absorbed  a  third  series  of  Pl,- 
988,460  of  this  now-famous  bond  issue;  a 
fifth  of  P2,500,000;  an  eighth  of  P41,117,298. 
The  distribution  of  the  last  was  as  follows: 

Banco  Nacional  de  Mexico P  4,499,995.50 

Banco  de  Londres  y  Mexico 11,705,885.90 

Banco  Minero  de  Chihuahua 3,456,472.50 

Banco  Peninsular 3,999,996.00 

Banco  de  Zacatecas 100,035.00 

Banco  del  Estado  de  Mexico 1,300,104.00 

Banco  de  Coahuila 1,419,298.50 

Banco  de  San  Luis  Potosf 500,105.00 

Banco  Mercantil  de  Vera  Cruz 1,999,998,50 

Banco  de  Jalisco 1,821,164.00 

Banco  Oriental  de  Mexico 3,183,289.11 

Banco  de  Guanajuato 1,580,377.50 

Banco  de  Tabasco? 300,070,00 

Banco  de  Hidalgo 950,157.00 

Banco  de  Tamaulipas 1,700,000.00 

Banco  de  Aguascalientes 180,063.00 

Banco  de  Morelos 200,070.00 

Banco  de  Queretaro 520,147.00 

Banco  de  Guerrero 200,070.00 

Banco  de  Durango 1,500,000.00 

Total P41,117,298.51 

219 


PRESENT  AND   PAST   BANKING   IN  MEXICO 

The  banks  had  now  been  forced  to  absorb 
bonds  in  a  total  of  P63,655,758  against  which 
their  notes  had  been  issued  in  similar  sum,  and 
against  which  they  were  required,  under  the 
law,  to  maintain  metallic  reserves,  of  50  per 
cent.  While  the  law  had  been  amended  by 
Huerta,  the  ratio  being  fixed  at  33 J^  per  cent., 
it  was  impossible  under  the  circumstances  for 
the  banks  to  adjust  themselves  even  to  this 
modified  program.  They  were  almost  para- 
lyzed, and  the  country  at  large  was  but  little 
better  off. 

What  with  the  interference  with  banks  and 
the  intensified  scramble  for  "hard"  money, 
Huerta's  troubles  multiplied.  It  was  to  be 
expected  that  his  finance  schemes  would  be 
questioned  and  the  results  of  their  operation 
would  be  heavily  discounted.  Such  in  effect 
was  the  situation.  Early  in  1914,  so  great 
was  the  demand  for  metallic  currency  and 
exchange  that  soon  all  bank-notes  were  at  a 
discount.  Only  the  bills  of  the  Banco  Nacional 
continued  to  stand  out  with  any  degree  of 
strength,  and  these,  too,  by  and  by,  were  to 
fall  in  the  general  slump. 

When  Huerta  came  into  power  he  found  the 
credit  institutions  of  the  country  demoralized 
and  frightened;  but  they  were  not  broken.  On 
January  31,  1913 — a  few  days  before  the  over- 

220 


throw  of  Madero — in  a  published  statement l 
the  banks  showed  a  capital  stock  of  P181,500,- 
000,  and  all  paid  but  P4,500,000.  One  year 
later  this  capital  had  been  reduced  to  P154,- 
225,500,  largely,  it  will  be  recalled,  through  the 
losses  of  the  Banco  Central.  The  surplus 
funds,  too,  had  shrunk  by  more  than  P6,000,- 
000.  More  alarming  still,  the  circulation  of 
notes  had  increased  from  P131, 847,341  to 
P178,538,591,  while  the  cash  reserve  had  actu- 
ally fallen  from  P91,586,032  to  P80,228,893. 
Over  the  same  period  demand  deposits  had 
fallen  from  P80,725,081  to  P57,320,345;  and 
time  deposits  from  P90,113,052  to  P72,574,578. 
Total  assets  went  down  from  Pl,126,998,367 
to  P977,442,601.  By  the  end  of  June,  1914, 
demand  deposits  had  receded  to  P44,398,365, 
and  time  deposits  to  P63,798,547;  while  the 
circulation  had  risen  to  P231, 315,689  against 
a  cash  reserve  of  P90,785,994. 2 

On  July  16,  1915,  the  reins  of  authority  were 
passed  to  Seiior  Carbajal,  president  of  the 
Supreme  Court  of  Justice,  who  was  to  exercise 
a  precarious  rule  until  August  15th,  when 
Carranza  marched  into  the  capital. 

The  detailed  statement  which  we  insert,  as 
of  June  30,  1914,  for  twenty-four  banks  of 

1  Boletin  Finaiiciera  y  Minero  de  Mexico,  March  18,  1914. 

2  Ibid.,  September  IS,  1914. 

221 


PRESENT  AND   PAST  BANKING  IN  MEXICO 


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HUERTA  AND  THE  BANKS 


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.. 

W.S 

I 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

emission,  five  auxiliary,  and  three  mortgage 
banks  is  of  interest,  for  it  was  prepared  on  the 
eve  of  Huerta's  going.1  (Slight  discrepancies 
appear  in  the  totals,  due  to  leaving  the  cents 
out  of  count.) 

1  Boletin  Finandera  y  Minero  de  Mexico,  September  12,  J914. 


XVI 


REGIME  OF   THE   CONSTITUCIONALISTAS 


T  T  THEN  the  Constitutionalist  troops  marched 
V  V  into  Mexico  City  they  brought  with  them 
bundles  of  fiat  paper  currency — roughly  printed 
notes  wherewith  the  Revolution  had  been 
financed  for  almost  a  year  and  a  half.  From 
Monclova,  early  in  1913,  Carranza  had  emitted 
his  first  "currency,"  known  as  the  Monclova 
issue.  This  fiat  paper  was  forced  upon  the  pub- 
lic under  severe  penalties.  Merchants  and 
farmers  were  compelled  at  the  point  of  guns 
to  accept  it  in  exchange  for  goods;  and  bank- 
ers, on  pain  of  jail,  were  ordered  to  re- 
ceive it  in  liquidation  of  debts.  And  quite 
in  keeping  with  the  progress  of  the  Revolu- 
tion, where  banks  had  not  been  fortunate 
enough  to  escape  with  their  assets,  they  were 
left  in  the  wake — broken  institutions. 

Not  long  after  Carranza's  advance  carried 
him  to  Tampico  he  authorized  an  Ejercito 
Constitucionalista  (Constitutionalist  army)  issue 
of  paper  currency,  and  this  it  was  he  hauled 

225 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

into  the  capital.  This  new  note  was  not  un- 
known there,  for,  as  curiosities,  specimens  had 
been  displayed  in  windows;  but  now  they  were 
brought  in  such  quantities  one  shuddered  to 
think  of  it;  and  rude  soldiers,  rifles  in  hand, 
proceeded  to  the  market-places,  there  to  buy 
the  things  they  fancied  and  to  tender  "Con- 
stitutionalist" paper  in  payment. 

First,  the  shopkeepers  were  the  sufferers; 
but  almost  at  once  the  whole  fabric  of  society 
was  permeated  by  the  blight.  Immediately, 
as  by  necromacy,  every  metal  coin  and  bank- 
note disappeared — the  worthless  paper  had  put 
it  to  flight.  Gresham's  Law  never  had  more 
blatant  witness.  The  first  phase  of  its  opera- 
tion we  have  seen  under  the  dispensations  of 
Huerta.  The  last  we  are  now  to  witness,  when 
the  small  fractional  silver  and  copper  coins  and 
the  depreciated  bank-notes  fled  to  cover  before 
the  deluge  of  fiat  currency. 

There  developed  at  once  a  vicious  circle 
which  caught  up  society  in  a  disintegrating 
whirl.  The  course  of  the  Revolution  in  the 
capital  for  the  next  two  years  was  little  short 
of  a  financial  orgy.  Beginning  with  the  soldier, 
the  fiat  paper  reached  the  man  in  the  street 
and  the  retailer  in  exchange  for  goods  and 
wares.  The  retailer  hurried  to  the  wholesale 
dealer  to  pay  his  bills;  the  dealer  raced  to  the 

226 


REGIME  OF  THE  CONSTITUCIONALISTAS 

bank  to  liquidate  his  obligations ;  and  the  bank 
endeavored  in  turn  to  pay  back  to  the  people 
the  paper  which  accumulated  in  its  hands. 
And  all  the  while  the  volume  of  notes  endlessly 
increased,  for  the  Constitutionalists  had 
brought  with  them  their  printing-presses. 

The  banks  were  in  the  predicament  of  being 
compelled  to  receive  this  paper  in  liquidation 
of  debts,  for  it  was  expressly  declared  to  be 
legal  tender  (cur so  forzoso) .  And  the  penalties 
were  severe  for  refusal  to  accept  it.  Obligations 
which  had  been  contracted  in  good  faith  on  a 
gold  basis  were  now  paid  on  a  paper  basis. 
The  banks  were  in  a  more  or  less  helpless  pre- 
dicament. If  they  in  turn  might  have  liqui- 
dated obligations  to  depositors  through  paying 
out  the  identical  paper  on  a  similar  basis,  the 
operations  would  have  washed  one  another, 
and  the  banks  in  the  end  have  emerged  none 
the  worse.  But  it  goes  without  saying  that 
many  depositors  could  not  be  reached,  spite 
of  the  fact  that  most  of  the  banks  exerted  them- 
selves to  the  utmost  to  locate  their  clients  and 
to  urge  the  withdrawal  of  deposits.  There  were, 
indeed,  heavy  liquidations  of  obligations  to 
banks,  and  in  turn  there  were  heavy  liquida- 
tions of  deposits,  because  many  depositors 
found  the  opportunity  of  using  to  advantage 

the  paper  currency  and  readily  withdrew  it. 
16  tat 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Nevertheless,  when  the  grand  totals  were 
struck,  it  was  found  that  most  of  the  banks  had 
suffered  losses  in  the  transactions.  However, 
a  few  private  and  foreign  banking  institutions 
seized  the  opportunity  to  buy  valuable  real 
estate  and  buildings,  making  payments  in  de- 
preciated currency.  In  time,  these  may  work 
into  great  profits. 

Here,  no  attempt  can  be  made  to  trace  the 
topsy-turvy  course  of  the  Revolution,  the  rise 
to  authority,  and  the  fall  of  the  contesting 
factions.  Our  interest  at  the  moment  lies  in 
showing  the  effects  on  the  banks  of  the  currency 
expedients  of  the  various  groups.  For  example, 
after  a  few  weeks  of  experience  in  the  capital 
with  the  issues  of  the  Constitutionalists,  Villa 
and  his  friends  came  in  and  drove  Carranza  to 
Vera  Cruz.  Thereupon,  effort  was  made  to 
force  the  substitution  of  Villa  issues  (dos  caras, 
sdbanas)  upon  the  people  to  the  exclusion  of 
those  of  Carranza.  The  confusions  in  the  mone- 
tary order  were  abysmal,  and  Villa's  Minister 
of  Hacienda,  at  an  early  date  called  a  meeting 
of  bankers  and  frankly  announced  his  igno- 
rance of  what  was  to  be  done  to  set  things  to 
rights.  He  asked  for  counsel  and  assistance, 
and  it  may  be  added  that  Villa  and  Zapata 
resorted  to  no  harsh  measures  with  respect  to 
the  banks  while  the  capital  was  in  their  hands. 

228 


REGIME  OF  THE  CONSTITUCIONALISTAS 

Indeed,  Zapata  once  borrowed  P50,000  from 
them,  but  returned  it  in  two  days. 

In  the  mean  time,  from  Vera  Cruz  the  Con- 
stitutionalists kept  their  presses  running,  strik- 
ing off  what  came  to  be  known  as  the  Vera 
Cruz  issue.  And,  as  things  will  turn  out  in 
that  country,  erelong  they  were  again  estab- 
lished in  the  capital,  the  Villa  paper  was  de- 
clared void,  and  forthwith  new  millions  of 
Veracruzanas  were  added  to  the  already  con- 
gested circulation. 

What  we  have  here  described  briefly  as  the 
course  of  the  fiat  paper  currencies  in  the  capi- 
tal typifies  the  universal  experience  of  the 
country.  No  town  or  city  or  countryside 
escaped.  The  demoralization  and  the  chaos 
were  almost  fascinating  in  their  sheer  uncer- 
tainties. Speculation  ran  riot;  no  man  wished 
to  fall  asleep  with  paper  currency  in  his 
pocket,  for,  lo!  when  he  awakened  overnight 
he  might  discover  that  its  values  had  evapo- 
rated with  the  incoming  of  a  new  faction;  or, 
indeed,  find  that  a  decree  had  pronounced  it 
void. 

The  banks  in  Mexico  City  suffered  many 
ups  and  downs  over  the  anxious  months  cover- 
ing the  entries  and  exits  of  Carranza,  Villa, 
Zapata,  and  the  Convencionistas.  They  hardly 
knew  what  to  expect.  Sometimes  when  things 

229. 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

looked  too  serious  they  closed  their  doors  for  a 
season.  Such  was  the  case  from  the  27th  of 
January,  1915,  to  the  13th  of  February;  and 
from  the  19th  of  February  to  the  13th  of 
March;  and  from  the  19th  to  the  28th  of 
June. 

On  August  1,  1915,  Carranza  had  entered 
the  capital,  where  he  has  since  remained. 
From  that  time  forward  the  banks  began  to 
feel  the  full  weight  of  the  Revolution.  Banking 
and  vested  interests  had  dreaded  the  rise  to 
authority  of  the  long-time  Senator  from  Coa- 
huila — Venustiano  Carranza.  His  attitude  had 
been  sufficiently  revealed  through  his  attacks 
on  property  in  the  states  he  had  overrun. 
Change  in  this  attitude  was  unlikely  after  he 
had  been  recognized  by  the  United  States 
and  after  he  had  risen  to  the  headship  of  the 
convulsed  republic. 

With  the  fall  of  Huerta  and  the  incoming  of 
Carranza  with  his  fiat  paper  currency,  the 
banks,  in  a  sense,  resigned  themselves  to  the 
inevitable.  Under  Madero  and  Huerta  things 
had  gone  badly  enough.  For  example,  from  the 
end  of  1910  to  the  end  of  1915  the  deposits  of 
the  Banco  Nacional  fell  from  P47,000,000  to 
P18,000,000,  and  specie  from  P48,500,000  to 
P36,500,000.  At  the  same  time  the  circulation 
of  the  bank  had  increased  from  P52,000,000  to 

.230 


REGIME  OF  THE  CONSTITUCIONALISTAS 

P86,000,000,  due  largely  to  the  operations  of 
Huerta.  Nor  had  it  been  able  in  any  commen- 
surate degree  to  reduce  its  outstanding  credit 
lines.  It  had  indeed  begun  to  close  its  branches 
— of  which  there  were  sixty — as  early  as  1913, 
and  to  bring  books  and  assets  to  the  parent 
bank  in  the  capital. 

If  we  turn  now  to  the  Banco  de  Londres,  the 
second  largest  institution  in  the  country,  we 
shall  find  that  its  assets  from  November  30, 
1912,  to  December  31,  1915,  dwindled  from 
P196,799,956  to  Pl71,043,290;  and  by  March 
31,  1916,  this  total  had  fallen  to  P166,859,547. 
Cash  resources,  on  the  other  hand,  had  in- 
creased between  November  30,  1912,  and 
December  31,  1915,  from  P15,418,232  to  P20,- 
604,051.  To  be  sure,  there  had  been  an  ex- 
pansion in  its  note  circulation,  running  from 
P21,363,091  to  P38,403,549.  However,  it  should 
be  remarked  that  the  high  point  in  the  out- 
standing circulation  of  the  bank  was  reached 
on  July  31,  1914,  when  the  total  approximated 
P62,402,566,  as  the  result  of  Huerta's  forced 
loans.  But  from  that  date  there  was  a  steady 
decline. 

The  experience  of  all  other  banks  in  the  Re- 
public was  more  or  less  in  keeping  with  the 
above  record.  Differences  were,  in  the  main, 
only  in  degree.  While  branches  of  foreign  banks 

231 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

or  private  banking  institutions,  for  the  most 
part,  have  published  no  detailed  reports,  suffi- 
cient information  has  been  gathered  first-hand 
to  warrant  the  above  statement.1 

While  we  are  casting  up  balances  at  the  end  of 
1915,  we  may  not  overlook  the  Caja  de  Pres- 
tamos,  which  came  into  existence  in  1908.  We 
have  seen  that  it  rapidly  got  under  way.  In 
1912  the  government  acquired  share  control, 
although  it  was  already  too  late  to  thwart  the 
inside  clique,  which  early  divested  the  institu- 
tion of  its  credits. 

Here,  as  perhaps  nowhere  else,  the  criticism 
holds  true  that  the  banks  were  operated  in 
Mexico  largely  in  the  interest  of  the  parties 
in  control.  It  is  a  pathetic  commentary  on  the 
high  purposes  of  President  Diaz  to  show  that 
the  Caja  de  Prestamos,  which  was  expected 
to  relieve  multitudes  of  farmers,  restricted  its 
loan  operations  to  a  few  conspicuous  hacenda- 
dos  and  real-estate  speculators  of  the  Republic. 
According  to  the  statement,  which  follows  be- 
low, the  loans  of  the  Caja  totaled  P55,237,405. 
Of  this  total  P53,540,000  had  actually  been 
loaned  to  ninety-six  individuals.  The  largest 
single  loan  had  been  made  to  an  agricultural 
and  colonizing  company  in  a  total  of  P5,283,- 

1  As  noted  in  the  preface,  it  is  not  now  possible,  because  of  personal 
confidences,  to  give  sources  of  authority. 


REGIME  OF  THE  CONSTITUCIONALISTAS 

000.  The  cash  resources  of  the  institution  by 
the  end  of  1915  had  been  reduced  to  approxi- 
mately P3, 000, 000,  and  the  untoward  condition 
of  its  business  in  general  was  reflected  in  the 
item  of  P7,500,000  which  it  carried  in  past-due 
obligations.  The  fate  of  the  Caja  was  fore- 
shadowed. It  had  failed  completely  in  the  mis- 
sion for  which  it  had  been  designed.  The 
original  idea  which  Limantour  and  Diaz  had 
entertained  of  giving  to  Mexico  a  system  of 
rural  credits  had  been  swamped  by  the  pro- 
tagonists of  the  Caja  de  Prestamos;  and  now, 
bitterly  enough,  the  Caja  designed  to  follow 
the  land  banks  of  Germany  and  the  Credit 
Foncier  of  France  had  gone  by  the  board. 

What  had  happened,  to  put  it  frankly,  was 
that  P60,000,000  of  credits  had  been  loaned 
to  a  comparatively  few  individuals.  The  gov- 
ernment was  left  to  hold  the  bag  as  guarantor 
of  principal  and  interest  of  the  P50,000,000 
of  gold  bonds  which  had  been  sold  abroad. 
Just  what  loss  Mexico  may  eventually  suffer 
from  its  guaranty,  no  one  can  say.  That  de- 
pends on  the  manner  and  time  in  which  the 
securities  impounded  with  the  Caja  shall  be 
liquidated. 

The  statement  in  detail  of  its  condition  as 
of  December  31,  1915,  runs  as  follows:  * 

1  Caja  de  Prfatamos,  etc.,  Mexico,  1916,  Annex  No.  5,  opposite  p.  40. 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

STATEMENT  OF  THE  CONDITION  OP 
THE  CAJA  DE  PRESTAMOS 

RESOURCES 

Cash P  1,113,001.88 

Loans 55,237,404.88 

Investment  in  stocks  and  bonds 2,088,780.00 

Deposits  in  banks 947,902.01 

Debtor  accounts  in  gold 794,785.56 

Various  debtor  accounts 7,778,189.63 

Properties  foreclosed 378,884.49 

Commissions  on  sale  of  gold  bonds. .  4,571,346.62 

Expenditures  on  installation 31,883.66 

Furniture  and  fixtures 2,729.45 

Rediscounts 113,702.18 

Deposit  of  securities  in  guaranty .  .  .  9,215,253.94 

Profit  and  loss 6,048,110.18 

Total P88,321,974.48 

LIABILITIES 

Capital P10,000,000.00 

Four-and-a-half-per-cent.  gold  bonds  50,000,000.00 

Reserve  funds 1,375,958.29 

Deposits 4,819,371.89 

Creditor  accounts  in  gold 4,923,766.00 

Various  creditor  accounts 359,514.36 

Uncollected  maturities 7,627,892.00 

Dividend  of  1912 218.00 

Deposits  of  securities  in  guaranty. . .  9,215,253.94 

Total P88,321,974.48 

Carranza,  on  September  29,  1915,  ordered 
that  special  inquiries  should  be  made  into  the 

234 


REGIME  OF  THE  CONSTITUCIONALISTAS 

conditions  of  the  banks  of  emission,  with  a 
view  to  taking  such  action  as  the  situation 
warranted.  This  was  set  about  punctually 
and  reports  began  early  to  appear  in  El  Con- 
stitucionalista,  the  official  organ. 

By  way  of  illustration,  on  January  19,  1916, 
statements  were  published  with  respect  to  the 
Banco  de  Nuevo  Leon  and  the  Banco  de  Zaca- 
tecas.  As  to  the  former,  the  special  examiner 
reported  that  the  bank  held  in  vault:  P665,000 
gold;  P199,300  silver;  subsidiary  coins,  PlO,- 
768.13;  or  a  total  of  P875,068.13.  Notes  out- 
standing he  found  to  be  P2,170,211;  sight  de- 
posits, P16,632  (non-interest  bearing);  sight 
deposits,  interest  bearing,  P39,975.  The  ex- 
aminer then  stated  that  under  its  concession 
this  institution  was  empowered  to  issue  notes, 
secured  on  a  33-per-cent.  metallic  basis,  and 
that  it  was  therefore  well  within  the  limits  of 
the  law.  As  for  the  Banco  de  Zacatecas,  its 
condition  was  reported  on  as  of  November 
13,  1915.  Its  capital  was  found  to  be  Pi, 500,- 
000,  of  which  P600,000  had  been  paid;  cash  in 
vault,  gold,  P537,440;  silver,  P235,239.20;  or 
a  total  of  P722,679.21.  Notes  in  circulation, 
Pl,529,604;  sight  deposits,  P9,319.52;  at  three 
days,  Pl,272,171.78.  This  statement,  clearly, 
as  the  examiner  admitted,  found  the  institu- 
tion within  the  terms  of  its  concession.  The 

235 


PRESENT  AND   PAST   BANKING  IN  MEXICO 

examiners  went  on  to  analyze  the  portfolio 
and  concluded  that  in  their  judgment  the  bank 
was  in  a  sound  condition,  and  recommended 
that  its  concession  should  not  be  annulled — and 
it  was  so  declared. 

This  work  was  continued  until  all  the  banks 
in  the  territory  controlled  by  the  Constitution- 
alists had  been  inspected.  This  labor  was  con- 
cluded in  the  spring  of  1916,  and  things  were 
ready  for  a  new  advance. 

The  condition  of  the  country  as  a  whole 
had  been  growing  steadily  worse.  A  consider- 
able percentage  of  the  rural  population  had 
been  driven  from  their  ranches  and  farms  by  the 
warring  factions.  What  with  the  slackening 
in  production  and  the  general  economic  pros- 
tration of  the  land,  the  Constitutionalists  early 
found  themselves  in  financial  as  well  as  political 
difficulties. 

The  Monclova  and  Constitutionalist  issues  of 
paper  currency  had  from  the  first  been  heavily 
counterfeited.  And  now  the  Vera  Cruz  issue 
came  in  turn  not  only  to  be  counterfeited,  but 
to  be  issued  in  such  floods  by  the  authorities 
that  the  public  could  not  absorb  it.  There- 
fore, day  by  day,  its  exchange  value  fell  in  the 
markets. 

Taking  the  counterfeit  element  in  the  equa- 
tion as  its  starting-point,  the  government  de- 


REGIME  OF   THE    CONSTITUCIONALISTAS 

termined  to  rid  itself  of  the  load  of  rapidly 
depreciating  currencies.  It  would  issue  a  new 
note,  excellent  in  every  respect  and  proof 
against  counterfeiters,  to  be  known  as  the  in- 
falsificable.  It  would  be  issued  in  limited 
quantities  on  a  20-centavo  basis,  and  its  value 
would  be  supported  by  the  Administration 
through  metallic  reserves  of  100  per  cent., 
which  were  to  be  created.  Before  the  end  of 
1915  all  arrangements  had  been  made  for  the 
infalsificable  experiment.  Accordingly,  as  early 
as  April  28  and  May  31,  1916,  through  de- 
crees, all  issues  of  notes  not  hitherto  declared 
void  were  now  so  classified  or  ordered  out  of 
circulation.  The  field  was  to  be  cleared.  No- 
tice was  published  that  holders  of  bona-fide 
notes  of  the  Vera  Cruz  issue  might  have  them 
verified  by  the  Hacienda  for  legality,  and  such 
notes  might  then  be  turned  in  for  infalsificables 
at  a  ratio  of  ten  to  one.  Since  the  infalsificable 
was  to  be  issued  at  20  centavos,  gold,  the  Vera 
Cruz  peso  was  admitted  by  the  government  to 
be  worth  1  cent  in  the  currency  of  the  United 
States.  In  all,  P47,570,000  were  turned  in  to 
the  government.  But  infalsificable  notes  were 
not  issued  in  exchange  for  the  Vera  Cruz  notes 
—bonds  instead  were  given  out,  and  payments 
on  these  accounts  were  to  extend  over  five 
years.  It  is  fair  to  say  that,  according  to  re- 

237 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

ports,  three  payments  have  been  made  on  this 
obligation. 

By  the  end  of  June,  1916,  the  Veracruzanas 
had  disappeared — the  new  note  had  been  in- 
troduced. That  closed  one  of  the  most  lurid 
financial  chapters  in  the  history  of  any  country 
— and  opened  another.  In  all,  it  is  asserted 
that  small  and  large  issues  of  fiat  paper  currency 
exceeded  200,  and  the  volume  reached  easily 
Pl,000,000,000.  This  is  exclusive  of  the  in- 
falsificable  issue.  Senor  Rafael  Nieto,  Sub- 
Secretary  of  Hacienda,  in  an  interview  quoted 
in  El  Universal  of  July  19,  1918,  is  credited 
with  limiting  the  fiat  currencies,  leaving  out 
of  count  the  infalsificable,  to  P300,000,000, 
which  he  boasts  was  retired  at  a  paper  expense 
of  P5,000,000.  As  a  matter  of  fact,  that  sum 
is  P25  0,000  in  excess  of  the  real  charge  laid  on 
the  Treasury. 

When  the  infalsificable  appeared  on  the  scene, 
the  stage  was  set  for  the  grand  finale;  the  cur- 
tain would  be  dropped  on  the  paper  troop. 
At  first  things  went  smoothly  enough,  for  the 
infalsificable.  Being  the  only  legal  tender  in 
circulation,  gold  and  silver  having  long  since 
retired,  those  in  need  of  current  funds  were 
forced  to  exchange  with  the  government  their 
precious  metals,  or  New  York  credits,  on  a 
basis  of  20  centavos  for  each  infalsificable  peso. 

238 


REGIME  OF  THE  CONSTITUCIONALISTAS 

It  was,  however,  only  a  matter  of  days  until 
there  developed  other  and  almost  mysterious 
markets  for  the  new  paper,  and  the  price 
quoted  by  the  government  was  slightly  shaded. 
That  pointed  to  the  abyss.  As  the  govern- 
ment daily  poured  into  the  circulation  new 
quotas  of  notes  in  payment  of  troops  and  in 
purchase  of  supplies,  troubles  grew  apace,  for 
the  promised  metallic  reserves  failed  of  ma- 
terialization. 

At  the  very  outset  a  decree  had  been  issued 
forbidding  banks  as  well  as  individuals  to  deal 
in  exchange  or  paper  money  without  a  permit, 
and  then  only  at  official  rates  and  after  pay- 
ment of  a  prohibitive  tax.  That  is  to  say,  it 
was  meant  that  none  should  interfere  with  the 
government's  plans.  The  Administration  under- 
took to  concentrate  in  its  offices  all  exchange 
operations,  which,  as  a  matter  of  fact,  were  vital 
to  the  successful  carrying  out  of  its  enterprise. 
For  about  a  month  the  government  was  en- 
abled, through  the  Comision  Monetaria  (Mone- 
tary Commission),  to  maintain  the  standard 
set  by  it  of  20  centavos  per  peso,  and  redemp- 
tions of  infalsificable  notes  were  made  on  the 
basis  indicated.  Finally,  however,  the  demands 
for  redemption  reached  such  proportions  that 
the  government  was  greatly  distressed.  With 
the  first  break  in  the  price,  there  developed  the 

839 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

coyote,  a  sort  of  bucket-shop  broker,  who, 
despite  the  severe  penalties  imposed,  ever  mul- 
tiplied. Soon  the  price  broke  further,  and  the 
government  desisted  in  its  purpose  to  put  down 
clandestine  trading  in  the  notes. 

On  the  recommendation  of  the  Comision 
Monetaria,  the  Hacienda  now  undertook  to 
support  the  market  through  bringing  in  con- 
fidentially several  of  the  branches  of  foreign 
banks  and  several  private  bankers.  These  in- 
stitutions were  supplied  with  exchange  on  New 
York,  which  they  expended  in  the  purchase 
of  infalsificables.  The  sums  advanced  daily 
ranged  from  P5,000  to  P50,000;  and  for  three 
months,  from  early  in  August,  these  institu- 
tions continued  to  support  the  market,  to  the 
extent  of  the  funds  supplied  by  the  Comision. 

Of  course,  their  efforts,  too,  were  abetted  by 
the  Comision,  which  had  been  organized  under 
a  decree  of  April  3,  1916 — a  decree  which  had 
been  modified  August  30th  of  the  same  year,  at 
which  date  the  functions  of  the  Comision  de 
Cambios  y  Moneda  were  absorbed.  We  have 
heretofore  seen  something  of  the  operations  of 
the  Comision  de  Cambios  y  Moneda,  and  we 
are  now  to  see  the  Comision  Monetaria  in 
action.  The  abolition  of  the  former  was  in 
line  with  the  general  disruptive  policies  of  the 
Administration.  It  seemed  part  and  parcel  of 

240 


REGIME  OF  THE  CONSTITUCIONALISTAS 

a  plan  to  leave  nothing  as  it  was  before.  The 
honorable  record  of  the  Comision  de  Cambios 
y  Moneda  was  now  quite  to  be  obliterated. 
The  Comision  Monetaria  had  as  raison  d'etre 
the  reorganization  and  regulation  of  the  fidu- 
ciary circulation  of  the  country. 

But  the  Comision  was  utterly  powerless  to 
stem  the  torrent.  A  very  high  reserve  alone 
could  have  saved  the  situation.  The  country 
had  three  years  of  fiat  paper  experience  back  of 
it.  The  best  available  tables  indicate  that 
there  were  issued  P540,000,000  of  infalsificables, 
although  definite  data  cannot  be  supplied  by 
the  Hacienda.  Sub-Secretary  Nieto  in  the  inter- 
view above  cited  fixes  the  limit  at  P500,000,000. 
Of  the  total  amount  issued,  the  Hacienda  claims 
to  have  called  in  and  destroyed  more  than 
P400,000,000,  and  the  balance  is  being  with- 
drawn through  a  special  tax.  The  infalsificable 
experiment  had  failed. 

There  was  no  escaping  the  fatal  logic — the 
scheme  was  notoriously  unsound.  The  Con- 
stitutionalist leaders,  whatever  illusions  they 
might  have  held,  were  at  last  to  learn  that  a 
fiat  currency,  unsupported  by  proper  metallic 
reserves,  is  an  ignis  fatuus  to  be  pursued  by 
the  untutored  or  the  dishonest. 

From  the  first  it  had  been  a  losing  fight.  By 
the  middle  of  August,  1916,  exchange  had 

241 


PRESENT  AND  PAST  BANKING   IN  MEXICO 


broken  to  4}^  or  4j^  centavos  per  infalsificable 
peso;  and  from  that  point  there  was  a  gradual 
recession  until  early  in  November  the  peso 
brought  but  a  centavo,  and  then  the  fraction 
of  a  centavo;  and,  finally,  all  effort  was  aban- 
doned to  keep  it  in  circulation.  Utter  failure 
had  crowned  the  government's  last  fiat  cur- 
rency plan. 


XVII 

CRASH   OF   THE  BANKS 

THE  collapse  of  the  paper-currency  regime 
with  the  return  to  metallic  currencies 
found  the  banks  hoarding  the  bulk  of  the  metal- 
lic stocks  in  their  vaults.  That  was  an  ill  situ- 
ation. The  clamorous  need  of  the  ruling  powers 
for  funds,  together  with  the  charge,  for  political 
effect,  that  the  banks  had  been  at  the  head 
of  a  conspiracy  to  defeat  the  government's 
monetary  plans  which  had  promised  so  much 
for  the  Republic,  brought  an  inevitable  end. 

So  early,  indeed,  as  September  15,  1916 — 
the  failure  of  the  infalsificable  was  evident — 
a  decree  was  issued  canceling  the  concessions 
of  the  banks  of  emission.  Sixty  days,  how- 
ever, were  granted  them  to  bring  their  metallic 
reserves,  held  against  notes,  into  conformity 
with  the  law.  Singularly  enough,  the  govern- 
ment did  not  appreciate  the  inconsistency  of 
its  position  in  declaring  in  annulment  the  con- 
cessions, while  ostensibly  allowing  the  banks 
sixty  days  to  restore  their  reserves.  Nor  was 

17  243 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

that  all.  A  Consejo  de  Incantation,  a  board  of 
sequestration,  was  appointed  for  each  institu- 
tion; and  thenceforward  no  operation  might 
be  resorted  to  save  under  the  dispensation  of 
the  Minister  of  Hacienda.  Even,  barring  this 
limitation,  it  would  not  have  been  possible 
under  the  disordered  state  of  things  to  bring 
up  the  metallic  reserves  to  the  requirements, 
for  no  metals  were  in  circulation;  nor  were 
the  mints  in  operation. 

Obviously  the  banks  entered  protests,  but 
when  managers  were  locked  up,  arguments 
ceased.  The  sequestration  boards  were  ad- 
mitted; and  in  most  cases,  in  conjunction  with 
committees  of  the  banks,  complete  inventories  of 
assets  and  liabilities  were  taken.  These  doubt- 
less will  serve  as  bases  for  claims  against  the 
Mexican  government  by  the  stockholders  of 
these  institutions — stockholders  mostly  in  the 
stricken  countries  of  Europe. 

The  history  of  banks  in  Mexico  from  the 
fall  of  Madero  to  the  decrees  of  Carranza 
putting  them  in  liquidation  is  a  story  quite 
unmatched.  It  is  impossible  in  the  nature  of 
this  study  to  take  up  the  several  institutions 
and  to  deal  with  them  in  their  individual  cases. 
It  must  needs  suffice  to  say  that  most  of  them 
suffered  grave  losses  thr  ough  the  Revolution, 
and  finally  succumbed  to  governmental  inter- 

244 


CRASH  OF  THE  BANKS 

vention.  A  few  institutions,  however,  managed, 
as  did  the  Banco  de  Sonora,1  to  escape  with 
cash  and  portfolios  across  the  border;  or  at 
least,  where  they  did  not  escape  intact,  man- 
aged to  save  part  of  their  cash  resources.  And 
even  these  funds  the  Mexican  government  has 
endeavored  to  reach  through  action  at  law. 

After  the  decree  of  September  15th,  to  all 
intents  and  purposes,  the  banks  ceased  to 
function.  The  government's  course  was  plain. 
When  it  found  itself  at  the  end  of  its  paper- 
currency  tether  it  began  to  take  steps  to  con- 
summate the  thing  it  had  held  in  reserve — 
the  appropriation  of  the  metallic  moneys  of 
the  banks.  When  soldiers  would  no  longer  ac- 
cept paper  currency,  they  had  to  be  paid  in 
specie,  and  the  only  immediately  available 
supplies  were  in  the  vaults  of  the  banks.  In 
the  vaults,  too,  were  quantities  of  bullion,  and 
this  the  government  was  to  seize  and  mint  for 
its  own  purposes  or  export  to  create  New  York 
credits — notwithstanding  its  pronouncement 
that  it  was  taking  over  the  reserves  in  order 
to  protect  the  note  issues  outstanding. 

Bankers  had  known  for  some  time  that  noth- 
ing could  save  them.  The  government  was 
aware  of  the  fact  that  the  banks  were  not  re- 


1  This  bank   is  now  chartered   under   the   laws  of  Arizona  and   is 
doing  business  at  Nogales. 

245 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

sponsible  for  having  exceeded  the  limits  set 
by  the  General  Law  of  1897  in  the  matter  of 
note  issues.  It  was  well  known  that  Huerta 
in  special  decrees  had  authorized — even  com- 
pelled— these  institutions  to  adopt  a  three- 
for-one  basis.  It  was  equally  well  known  that 
he  had  issued  every  peso  of  excess  circulation 
charged  to  the  banks.  But  no  extenuation 
was  to  be  considered. 

After  the  decree  of  September  15, 1916,  which 
placed  the  Mexican  banks  of  emission  in  liqui- 
dation, private  and  foreign  banks  loomed  in 
importance.  Of  course,  the  banking  institu- 
tions which  remained  in  the  capital  attempted 
to  do  only  the  most  perfunctory  business. 
Indeed,  it  is  not  too  much  to  say  that  the 
functioning  of  banks  was  negligible,  save  in  the 
department  of  exchange.  The  foreign  banks, 
almost  without  exception,  were  refusing  to  re- 
ceive deposits,  except  on  conditions  carefully 
prescribed  in  each  separate  case.  From  the 
end  of  1916  to  November,  1919,  deposit  and 
loan  operations  have  been  of  small  volume. 
The  Deutsche  Sudamerikanische  Bank  and 
Lacaud  &  Son  have  been  active.  The  former — 
a  branch  of  a  German  institution  reported  to 
be  controlled  by  the  Dresdner  Bank — took  on 
many  new  lines  and  its  deposits  at  one  time 
were  reported  to  have  reached  P^OOOjOOO. 

246 


CRASH  OF  THE  BANKS 

The  foreign  banks  of  note  are:  The  Com- 
pafiia  Bancaria  de  Paris  y  Mexico,  Deutsche 
Sudamerikanische,  El  Descuento  Espanol,  the 
Mexico  City  Banking  Company,  Lacaud  &  Son, 
the  Bank  of  Montreal,  the  Canadian  Bank  of 
Commerce,  and  the  Mercantile  Banking  Com- 
pany. 

These  banks  had  opened  in  Mexico  City  one 
after  the  other  during  the  preceding  twenty 
years,  and,  up  to  the  time  of  the  eruption,  had 
been  successful  in  the  conduct  of  their  business 
enterprises.  Foreign  banking  interests,  how- 
ever, had  on  more  than  one  occasion  been  sub- 
jected to  heavy  criticism  on  account  of  failures. 
The  most  noted  of  these  was  the  United  States 
Banking  Company,  which  collapsed,  it  will  be 
recalled,  in  the  early  part  of  1910  with  heavy 
losses.  In  spite  of  two  or  three  failures  of 
foreign  corporations,  the  banks  which  have 
remained  in  Mexico  enjoy  an  honorable  repu- 
tation. 

It  goes  without  saying  that  these  institutions, 
too,  have  suffered  during  the  revolutionary 
times.  Fully  three-fourths  of  their  deposits 
have  been  liquidated — a  liquidation  not  only 
invited,  but  insisted  upon  by  the  banks.  This 
constitutes  an  unheard-of  chapter  in  the  history 
of  banking,  and  offers  a  calamitous  commentary 
on  conditions.  These  institutions  have  suf- 

247 


PRESENT  AND   PAST   BANKING   IN  MEXICO 

fered  heavy  losses  through  the  enforced  pay- 
ment of  their  bills  receivable  in  depreciated 
paper  currencies.  The  Banco  Nacional  alone 
charged  off  P30,000,000  in  this  connection;  but 
through  the  purchase  of  its  notes  at  reduced 
prices  recouped  about  P7,000,000  of  the  loss. 
The  other  institutions  of  the  country  have 
probably  charged  off  in  the  aggregate  P50,- 
000,000  in  addition.1 

When  the  grace  allowed  in  the  decree  of 
September  15th  had  elapsed,  no  bank  having 
been  able  to  bring  its  reserve  within  the  limit 
fixed,  another  decree  was  published  (December 
14th).  It  referred  to  the  earlier  one,  declaring 
the  banks  in  liquidation  and  authorizing  them 
to  receive  checks  and  their  own  notes  in  satis- 
faction of  bills  receivable.  The  banks,  unjust 
as  this  rule  may  be  in  application,  are  not 
complaining.  Notwithstanding  the  fact  that 
bank-notes  can  be  bought  in  the  markets  at 
prices  ranging  from  5  to  25  centavos  on  the 
peso,  the  banks  may  not  in  law  or  morals  find 
ground  to  refuse  to  receive  them  at  par  in 

1  For  six  years  banks  have  endured  abnormal  conditions,  whether 
under  state  authority  or  otherwise.  The  Banco  Nacional  paid  its 
last  dividend  July  1,  1913;  Londres  y  Mexico,  August  1,  1915;  Banco 
Internacional  6  Hipotecario,  April  1,  1916. 2  But  these  were  the  ex- 
ceptions. As  for  the  stocks  of  the  banks,  as  many  as  twelve  are  no 
longer  quoted:  and  some  of  them  are  offered  in  the  markets  at  P5 
per  share,  par  being  P100. 

*Boletin  Financiera  y  Minero,  March  1,  1918. 

248 


CRASH  OF  THE  BANKS 

liquidation  of  obligations,  for  at  par  they  were 
issued. 

But,  on  the  other  hand,  the  attitude  of  the 
government  is  inconsistent  in  that  the  banks 
are  not  allowed  to  carry  in  their  statements 
bank-notes  of  other  banks,  at  face  value.  In 
the  estimates  made  by  the  government  on 
the  solvency  of  banks,  the  rule  has  been  pur- 
sued rigidly  to  discount  all  notes  at  70  per 
cent. 

The  third  step  in  the  plan  for  the  liquidation 
of  banks  was  taken  April  6,  1917.  On  that  date 
a  decree  was  published  stating  that  the  Haci- 
enda would  be  charged  with  the  responsibility 
of  carrying  out  the  plan,  directly  under  the 
President  of  the  Republic,  who  would  prepare 
the  regulations  so  as  to  prevent  disturbances 
and  dangers.  If  it  was  found  that  the  banks 
could  not  pay  out,  they  would  be  liquidated 
under  the  law  regulating  bankruptcies.  When 
all  reports  were  in,  the  latter  exit  developed; 
and  on  July  7th  a  new  decree  charged  the 
Comision  Monetaria  with  the  task.  Each  bank 
was  to  appoint  a  representative  enjoying  all 
the  powers  granted  under  the  law  regulating 
bankruptcies.  But  recently  the  banks  were 
taken  out  of  the  hands  of  the  Comision,  and 
now  await  the  enactment  of  a  law  to  cover 
their  particular  case.  But  Carranza  hesitates 

349 


PRESENT  AND  PAST   BANKING  IN  MEXICO 

to  act,  and  in  his  message  to  Congress  of  Sep- 
tember 1,  1919,  he  plainly  said  that  some  of 
the  banks  might  be  permitted  to  resume  busi- 
ness. 

At  first  the  government  in  its  decrees  carried 
two  divisions  for  banks,  the  concessions  of  one 
distinctly  declared  annulled,  the  other  not.  In 
the  first  group  were  included  the  banks  Pe- 
ninsular Mexicano,  Banco  de  Guerrero,  Banco 
de  Hidalgo,  Banco  de  Queretaro,  Banco  de  San 
Luis  Potosi,  Banco  de  Coahuila,  Banco  de 
Aguascalientes,  Banco  Minero,  Oriental  de 
Mexico,  Banco  de  Guanajuato,  Banco  de  More- 
los,  Banco  de  Durango,  Banco  de  Jalisco, 
Banco  de  Tamaulipas,  and  the  Mercantil  de 
Monterey.  The  concessions  of  the  first  and  the 
last  in  this  list,  spite  of  their  inclusion  here, 
were  not  annulled. 

The  second  group  contained  Banco  Nacional, 
Banco  de  Londres  y  Mexico,  Banco  del  Estado 
de  Mexico,  Banco  de  Zacatecas,  Occidental  de 
Mexico,  Banco  de  Nuevo  Leon,  Banco  de  Ta- 
basco, Mercantil  de  Vera  Cruz,  and  Banco  de 
Sonora. 

But  with  time  the  government  changed  its 
classifications.  In  May,  1918,  Sub-Secretary 
Nieto  of  the  Hacienda  gave  out  an  interview, 
referring  to  the  banks.1  He  said: 

1  El  Pueblo,  May  3,  1918. 

250 


CRASH  OF  THE  BANKS 

In  effect,  of  the  twenty-six  banks  of  emission  and 
auxiliary  (refaccion)  in  the  Republic,  twenty  must  be 
declared  in  bankruptcy,  since  their  assets  will  not  cover, 
by  wide  margins,  their  liabilities,  even  though  the 
government  should  pay  immediately  and  in  full  its  ob- 
ligations to  them.  Three  of  the  remaining  banks  are 
not  in  a  bad  condition,  but  their  capital  is  so  small  that 
they  can  be  of  little  support  in  the  organization  of  a  new 
system  of  credit.  The  other  three  banks,  although  they 
may  be  able  to  cover  their  liabilities,  taking  into  account 
what  the  government  owes  them,  have  lost,  nevertheless., 
almost  wholly  their  capital. 

The  three  banks  classified  as  sound,  but  with 
impaired  capital,  were  Banco  de  Sonora,  Occi- 
dental de  Mexico,  and  the  Mercantil  de  Mon- 
terey. The  three  which  had  lost  practically 
all  their  capital  were:  Banco  del  Estado  de 
Mexico,  Mercantil  de  Vera  Cruz,  and  the  Banco 
Nacional.1 

The  case  of  the  government  against  the 
banks — prepared  by  Senor  F.  G.  Camacho, 
Chief  of  the  Department  of  Banking — is  skil- 
fully set  forth  in  the  following  document,  which 
is,  we  believe,  unique  even  in  the  annals  of 
the  revolutionary  governments  of  Mexico.2 

The  notes  contained  in  the  chapter  entitled,  "Bank- 
ing," of  the  work,  What  Is  the  Revolution  (&Que  es  la 

1  El  Pueblo,  May  4,  1918. 

2  Memorandum  prepared  for  the  writer  by  Sefior  F.  G.  Camacho, 
Chief  of  Department  of  Banking. 

251 


PRESENT  AND   PAST   BANKING   IN  MEXICO 

Revolution?),  written  by  Senor  Don  Antonio  Manero — 
and  which  notes  I  believe  will  be  considered  reliable — 
display  with  great  clearness  the  fundamental  defects 
of  the  organization  of  the  Institutions  of  Credit  in  the 
Mexican  Republic,  which  defects  may  be  synthesized 
thus:  privileges  illegally  granted;  bad  management;  and 
very  bad  investments. 

In  fact,  both  the  General  Law  of  Institutions  of 
Credit  in  force  during  the  regime  of  General  Diaz,  and 
the  concession  contracts  of  the  Banks  of  Issue,  were 
promulgated  and  granted  in  flagrant  violation  of  our 
Constitution  of  1857,  which  provided  definitely  that  no 
private  concern  should  enjoy  privileges. 

The  banks  in  all  their  business  operations  were  ex- 
empt from  the  payment  of  federal,  local,  and  municipal 
taxes;  and  in  order  to  foreclose  their  debtors,  they  were 
not  obliged  to  go  to  the  courts  of  the  Republic,  but  could 
accomplish  that  without  the  intervention  of  the  judicial 
authorities. 

All  law  must  be  considered  as  unconstitutional — 
even  though  it  may  have  been  decreed  by  the  legislative 
houses  of  the  Union — when  it  exceeds  the  powers  and 
prescriptions  defined  by  the  Constitution  (Carta  Funda- 
mental). 

The  Huerta  government — denied  needed  resources 
by  foreign  countries  through  the  decisive  influence  of 
non-recognition  by  the  United  States — found  it  necessary 
to  have  recourse  to  the  natural  resources  of  the  country, 
and  obtained  from  the  banks  a  loan  of  about  forty  mill- 
ion pesos,  through  granting  to  them  the  right  of  raising 
the  ratio  of  issue  from  two-to-one  to  three-to-one,  with- 
out increasing  the  reserve.  It  declared  bank-notes,  their 
own  issues,  legal  tender  throughout  the  Republic,  which 
initiated  the  depreciation  of  the  fiduciary  paper. 

252 


CRASH  OF  THE  BANKS 

The  Revolution,  triumphant,  and  carrying  into  prac- 
tice its  principles  of  justice,  and  cognizant  besides  of  the 
fact  that  upon  the  banks  was  founded  the  power  of  the 
conservative  classes,  which  had  directly  supported  the 
government  of  General  Diaz,  and  which  had  overthrown 
the  constitutional  administration  of  Sefior  Madero,  and 
elevated  Huerta  by  the  coup  d'etat  of  February — there 
was  issued  a  series  of  laws  tending  to  modify  the  bank- 
ing organization  in  the  Republic  and  to  establish  it 
upon  the  basis  of  justice,  in  order  that  it  might  fill 
its  true  mission  in  the  life  of  the  people. 

Under  date  of  September  29,  1915,  it  was  ordered 
that  the  banks  should  adjust  their  circulation  according 
to  Article  16  of  the  General  Law  of  Institutions  of  Credit. 

None  of  the  banks  could  comply  with  the  provisions 
of  the  above-mentioned  regulation,  and  as  the  decree 
by  the  Huerta  government  was  illegal — on  account  of 
that  administration  having  come  into  being,  not  by  the 
will  of  the  people,  but  through  crime  and  force — the 
failure  of  the  banks  to  adjust  themselves  to  what  the 
laws  provided  would  have  warranted  the  government  in 
declaring  the  confiscation  of  their  concessions. 

On  analyzing  the  problem  more  deeply,  it  is  to  be 
seen  that  such  concessions  were  subject  to  defects  in 
their  origin,  as  stated  before;  and  such  was  the  founda- 
tion of  the  Decree  of  September  15,  1916,  by  which  the 
General  Law  of  Institutions  of  Credit  was  declared 
abrogated  and  the  concessions  of  the  Banks  of  Issue 
declared  null  and  void. 

On  formulating  such  regulation,  consideration  was 
given  that  the  notes  in  circulation  in  the  hand  of  the 
public  should  be  guaranteed  in  some  way,  as  well  as  the 
deposits  which  the  public  had  confided  to  the  Institu- 
tions of  Credit. 

253 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

These  two  conditions  demanded  the  intervention  of 
the  public  authorities  in  the  Banks  of  Issue,  so  that 
those  two  matters  should  have  attention,  in  such  manner 
that  the  interests  of  the  public  should  not  be  prejudiced. 

It  seems  unnecessary  to  emphasize  the  fact  that  the 
bad  situation  of  the  banks  does  not  arise  in  any  manner 
from  the  revolutionary  movement  or  from  the  laws  de- 
creed by  the  latter,  for  such  a  state  of  affairs  originated 
in  the  regime  of  General  Diaz,  from  causes  which  may 
be  ascertained  and  to  which  I  have  previously  referred. 

The  Decree  of  December  14,  1916,  having  been 
promulgated,  the  government  intervened  in  the  banks, 
and  its  concern  with  the  Institutions  of  Credit  has  not 
been  other  than  to  procure  by  all  possible  means  the 
conservation  of  the  interests  of  the  public,  performing 
all  those  operations  which  looked  to  the  evading  of  a 
crisis  and  to  facilitating  the  liquidation  of  the  banks 
referred  to.  Such  work  has  been  very  difficult,  for, 
owing  to  their  previous  bad  management,  their  port- 
folios are  stuffed  with  unrealizable  securities  which  have 
depreciated  and  which  in  reality  do  not  represent  even 
30  per  cent,  of  the  values  at  which  they  are  carried  on 
the  books. 

The  bankers  maintain  that  they  saw  themselves 
forced  to  accept  great  quantities  of  fiat  paper  in  payment 
of  their  loans;  but  they  do  not  admit  that  they  were  the 
direct  cause  of  the  depreciation  of  the  issues  put  out 
by  the  government,  nor  do  they  refer  to  the  great  quan- 
tities of  their  own  notes  bought  with  the  other  issues  at 
truly  ridiculous  prices,  as  well  as  the  many  deposits 
which  they  liquidated  at  par  in  the  same  currency. 

The  legal  regulations,  upon  which  are  based  the  acts 
of  the  government,  are  included  in  the  collection  of 
Decrees  which  I  inclose  with  this  short  memorandum. 

254 


CRASH  OF  THE  BANKS 

Before  concluding,  I  will  permit  myself  to  add  that  it 
is  a  matter  already  extensively  debated  and  practically 
decided  that  the  system  of  plurality  of  Banks  of  Issue 
is  less .  efficient  than  one  centralizing  the  matter  of 
emissions. 

Such  an  error  in  our  banking  system  was  recognized 
by  Limantour  himself,  its  founder,  and  in  1908  he  tried 
to  correct  it  by  the  issuance  of  a  modificatory  law  of  the 
General  Law  of  Institutions  of  Credit,  aiming  to  bring 
about  the  transformation  of  the  Banks  of  Issue  into  re- 
faccionario  banks,  and  looking  toward  the  end  that  the 
Banco  Nacional  should  be  the  only  bank  of  issue  in  the 
country.  Such  result  could  not  be  realized. 

As  the  present  government  of  Senor  Carranza  is  sure 
of  the  justice  and  honesty  of  its  proceedings,  all  the 
data  will  be  furnished  to  you  that  you  may  judge  per- 
tinent or  necessary  for  the  publication  of  your  work. 

Necessity  is  the  supreme  law;  for  the  public  affairs 
of  the  nation  the  government  saw  itself  under  the  ne- 
cessity of  disposing  of  part  of  the  metallic  reserves  of  the 
Banks  of  Issue;  but  such  sums  will  be  paid  over  by  the 
government  without  loss  to  the  Institutions  of  Credit. 

This  sum  amounts  to  P49,812,217.16,  as  you  may 
see  for  yourself  by  the  consolidated  General  Balance 
which  is  supplied  you. 

Said  quotas  supplied  by  the  banks  are  considered 
in  their  balances  as  cash  on  hand,  now  that  the  nation 
is  responsible  for  them. 

This  instrument  has  been  given  in  extenso 
in  order  to  show  clearly  where  the  govern- 
ment stands.  It  doubtless  is  true  that  some 
of  the  banks  were  badly  managed.  It  is, 
furthermore,  certain  that  some  of  them  had 

255 


PRESENT  AND   PAST  BANKING   IN  MEXICO 

made  loans  which  would  have  worked  out 
losses  even  in  normal  times;  but  that  all  the 
banks  were  in  this  category  is,  of  course,  an 
absurdity.  And  the  very  fact  that  the  govern- 
ment made  no  effort  to  distinguish  between 
good  and  bad  institutions  is  a  blunder  from 
which  there  can  be  no  escape.  According  to 
its  own  statement,  as  published  officially,  three 
banking  establishments  were  solvent  and  three 
had  suffered  only  impairments  of  capital.  Why, 
then,  should  these  institutions  have  been  closed? 
A  double  reason  appears  to  have  lain  at  the 
bottom  of  the  government's  course: 

1.  It  was  necessary  to  sweep  clear  the  ground 
in  order  to  establish  a  central  bank  of  emission, 
toward  which  the  attention  of  the  ruling  powers 
had  been  directed  from  the  first,  with  a  view 
to  placing  in  circulation  a  new  issue  of  fiat 
currency. 

2.  The  very  material  reason  that  the  banks 
held  in  their  vaults  some  millions  of  pesos  in 
coin.    It  was,  indeed,  out  of  these  balances  that 
the    government    admittedly    made    up    its 
monthly   deficits   over   the   year   1917 — these 
deficits  averaging  approximately  P4,000,000. 

The  banking  situation  in  Mexico  by  the  win- 
ter of  1919  had  changed  materially  from  De- 
cember, 1916.  In  the  first  instance,  practically 

all  the  gold  and  silver  of  the  institutions  had 

180 


CRASH  OF  THE  BANKS 

been  appropriated  by  the  Administration,  and 
the  banks  languished  in  the  hands  of  govern- 
ment officials.  Even  though  they  have  been 
in  possession  of  the  banks  for  three  years,  small 
progress  has  been  made  in  the  liquidation 
processes. 

The  Department  of  Agriculture  and  Fo- 
mento,  however,  has  announced  the  seques- 
tration of  a  tract  of  land,  approximating  746,000 
hectares,1  belonging  to  the  Banco  de  Londres. 
This  tract  is  situated  in  Quintana  Roo  and  is 
the  best  chicle  producer  in  the  Republic.  The 
bank  had  spent  a  lot  of  money  in  its  develop- 
ment, but  according  to  official  ruling  the  item 
must  be  charged  out  of  the  assets. 

But  there  are  few  changes.  This  is  shown  in 
a  comparative  study  of  two  statements  sup- 
plied by  the  Department  of  Banking.  One 
is  for  February  28th,  the  other  for  September 
30th.  Some  work,  it  is  true,  has  been  done 
in  shifting  credits  from  one  column  to  another. 
For  example,  "Securities  Immediately  Realiza- 
ble "shows  an  increase  of  more  than  Pl5,000,- 
000;  secured  loans  have  fallen  from  P7,964,178 
to  P3,856,112;  loans  to  the  Constitutional- 
ist government  have  risen  from  P49,812,217 
to  P53, 124,933.  The  loans  to  Huerta,  through 
failure  to  show  the  quota  advanced  by  the 

1  El  Pueblo,  March  20,  1918. 

257 


PRESENT  AND   PAST  BANKING  IN  MEXICO 

Banco  Nacional  in  the  February  statement, 
rose  from  P37,358,789  to  P48,493,180.  The 
reports  reveal  the  fact  that  as  rapidly  as  cash 
accumulated  in  the  banks  it  was  paid  to  the 
government.  The  net  of  it  all  is  that  approxi- 
mately P4,000,000  have  been  collected  by  the 
various  institutions  between  February  and 
September — and  that  nearly  all  of  it  went  to 
the  ruling  power. 

It  would  perhaps  be  of  interest  to  compare 
the  statement  of  banks  for  September,  1918, 
with  that  for  1910.  But  the  task  would  be 
thankless.  It  is  sufficient  to  say  that  the  total 
assets  of  the  banks  of  emission  over  the  eight 
years  have  shrunk  by  half,  and  the  cash  in 
vault  from  P70,000,000  to  P2,274,144. 

The  Administration  has  refused  to  admit  the 
liability  of  Mexico  on  the  bonds  which  were 
issued  by  Huerta,  and  yet  it  carries  in  its  tables 
the  item  as  a  loan.  In  its  analyses  of  balance- 
sheets,  however,  it  has  in  each  several  case 
deducted  the  Huerta  bonds  from  the  assets 
of  the  banks.  On  the  other  hand,  the  loans  to 
the  Constitutionalist  government,  which  were 
created  through  the  appropriation  of  the  specie 
of  the  banks,  are  admitted. 

When  all  is  said,  it  is  clear  that  any  attempt 
to  pass  judgment  on  the  condition  of  the 
banks  in  Mexico  would  prove  a  futile  task. 

258 


CRASH  OF  THE  BANKS 

Collaterals  in  the  portfolios  of  the  banks — 
perfectly  sound  prior  to  the  Revolution,  and 
which  still  might  be  valid  under  normal  con- 
ditions— if  thrown  on  the  market  can  yield 
no  returns.  Accordingly,  it  is  not  an  absurd 
position  the  government  takes  when  it  says 
that  30  per  cent,  only  of  the  portfolios  of  the 
banks  can  be  realized  upon. 

No  allowance  has  been  made  by  the  govern- 
ment for  the  fact  that  the  condition  of  the  banks 
is  largely  due  to  losses  suffered  through  the 
disintegration  of  their  collaterals  and  through 
the  destruction  of  properties  impounded  for 
the  security  of  debts.  The  banks  surely  have 
been  caught  between  Scylla  and  Charybdis — 
the  Scylla  of  revolution,  on  the  one  hand,  and 
the  Charybdis  of  a  hostile  government,  on 
the  other. 

There  can  be  no  future  in  Mexico  for  banking 
so  long  as  the  present  attitude  of  the  govern- 
ment persists.  In  the  first  place,  the  Consti- 
tution of  1917  inveighs  against  vested  interests, 
and  banking  is  singled  out  for  special  attack. 
And  yet  the  irony  of  it  all  is  seen  in  the  ad- 
mission of  the  authorities  that  no  regeneration 
of  Mexico  is  possible  without  credit  machinery. 
The  proof  of  this  is  found  in  the  abandonment 
for  the  time  being  of  the  Banco  Unico  idea  and 
the  concentration  of  the  Administration  on 

18  259 


PRESENT  AND  PAST  BANKING   IN  MEXICO 

the  enactment  of  a  general  law  for  credit 
institutions.  The  draft  of  an  Act,  bearing 
date  December  13,  1918,  provides  for  a  Banco 
Unico  de  Emision,  Bancos  Hipotecarios  (mort- 
gage), Refaccionarios  (auxiliary),  Agricolas 
(farm),  Petroleros  (oil),  and  Deposito  (deposit) 
— six  types  in  all.  It  is  scarcely  necessary  to 
comment  on  the  plan.  (At  this  writing,  No- 
vember, 1919,  the  measure  has  been  withdrawn 
from  Congress,  and  it  is  of  interest  simply  as 
pointing  a  moral.) 

In  any  program  looking  to  the  welfare  of  the 
Mexicans,  the  matter  of  providing  credit  in- 
stitutions which  shall  respond  to  universal 
needs  must  have  primary  consideration.  But 
such  program  may  not  be  approached  until  a 
stable  government  has  been  established. 


BIBLIOGRAPHY 

Address,  Farewell,  of  President  Porfirio  Diaz,  Mexico, 
1880,  10,  11. 

Banking  System  of  Mexico,  The,  C.  A.  Conant,  Wash- 
ington, 1910,  xi,  160,  161,  198. 

Banques  au  Mexique,  Les,  Jean  Favre,  Paris,  1907, 
xi,  141. 

Boletin  de  Estadistica  Fiscal,  1902-03,  No.  255,  131, 
134,  144;  1908-09,  No.  340,  179,  185,  188,  193; 
1910-11,  No.  366,  144. 

Boletin  Financiera  y  Minero  de  Mexico,  221,  224,  248. 

Caja  de  Prestamos,  etc.,  Mexico,  1909,  192,  233. 

Code  of  Commerce,  1884,  27,  28,  29,  30,  31,  32,  33,  34,  35. 

C6digo  de  Comercio  de  los  Estados  Unidos  Mexicanos, 
Jalapa,  1884,  29,  30. 

C6digo  de  Comercio  de  Mexico,  Mexico,  1854,  28,  29. 

Decrotos,  Circulares,  etc.,  del  Gobierno  Constitucionalista, 
218. 

Diaro  Oficial,  No.  120,  206;   No.  117,  207;  No.  122, 

207;    No.    126,   209;    No.  127,  209;    No.  128,  209; 

No.   129,  210,  212;    No.   130,   212,   214;  No.  132, 
218. 

El  Democrata,  September  13,  1917,  198. 
El  Economista  Mexicano,  27. 
El  Pueblo,  1918,  250,  251,  257. 

261 


BIBLIOGRAPHY 

Financial  Documents,  December,  1906,  150. 

Instituciones  de  Credito  en  Mexico,  Las,  Francisco  Bar- 
rera  Lavalle,  Mexico,  1909,  15,  22,  27. 

La  Cuestion  de  Bancos,  Indalecio  Sanches  Gavito  and 
Pablo  Macedo,  Mexico,  1895,  54. 

Las  Reformas  a  la  Ley  de  Instituciones  de  Credito,  Joaquin 
D.  Casasus,  Mexico,  1908,  174. 

Ley  de  Instituciones  de  Credito,  March  16,  1897,  100, 
102,  103,  105,  107. 

Leyes  Federales,  Labistida,  3,  4,  7,  8,  17,  18. 

Leyes  Saber  Instituciones  de  Creclito,  Jenaro  Garcia 
Nunez,  150,  151. 

Memorias  de  Hacienda,  Mexico,  x;  1870,  xvii,  4;  1880- 
81,  12;  1883-84,  17,  24,  28,  38,  42,  43,  45,  48,  49; 
1884-85,  18,  46,  52,  53,  56;  1885-86,  56,  60;  1886-87, 
57,  58;  1887-88,  59,  61;  1888-89,  61,  62,  65;  1889- 
90,  67,  69,  70;  1891-92,  23,  75,  76;  1892-93,  76,  78; 
1893-94,  87;  1894-95,  79,  82,  87;  1895-96,  82,  83, 
84,  89,  91;  1896-97,  81,  91,  92,  94,  95;  1897-98,  96, 
97,  128,  130,  131;  1898-99,  131;  1903-03,  146;  1905- 
06,  151,  152,  153,  154,  156;  1906-07,  157,  158,  159; 
1907-08,  163,  164,  165,  166,  171,  175,  197;  1908-09, 
192;  1910-11,  195,  196. 

Memorias  de  las  Instituciones  de  Creclito,  x,  94,  115,  116, 
133. 

Mexican  Year-Book,  1914,  144. 

Que  es  la  Eevolucion,  Antonio  Namero,  251,  252. 

Tres  Monografias,  Pablo  Macedo,  xi. 


INDEX 

.  186,  137,  180,  181,  182,  183,  185, 
186,  189,  193,  194,  222,  223,  234. 

Accounts,   demand,    141;   non-in-  Bankers'  Panic,  1907,  161,  162. 

terest-bearing,    166;   reciprocal,  Banking,  development  of,  11,  12, 

140,  151.  13. 

Agiotistas — extortionists,  xv.  Banking  law,   enactment  of,  82; 

Agrfcola  6  Hipotecario  de  Mexico,  of  1897,  100,  101,  109,  124,  126, 

Banco,  188,  190.  129,  131. 

Agrfcola  6  Industrial  de  Mexico,  Bank-notes,  issue  of,  5,  53,  94,  97, 

Banco,  91.  198,  210,  214,  215,  216,  219,  220, 

Agricultural  bank,  12,  13.  237,  238,  241,  243. 

Agriculture  products,  raise  in  price  Banks,   crash,   243-260;  develop- 

of,  27.  ment,  viii,  ix,  3,  4,  5,  9;  first,  106, 

Alcabala  taxes,  the,  82.  107,  108,  126;  foreign,  246,  247; 

Americans,    movement    of,    into  liquidation,  243,  245,  246,  248, 

Mexico,  20.  249;  mining,  12,  13,  99,  104;  of 

Amortized  nickel  coins,  56.  emission,  18,  82,  83,  84,  86,  92, 

Anarchy,  internal,  1,  2.  94,  96,  97,   99,  100,  105,  108, 

Ana,  Santa,  dictator  of  Mexico,  110,  127,  129,  142,  169, 172,  176, 

28,  29.  177,  224,  235,  243;  of  promotion, 

Assets,  banking,  growth  in,  132.  97,    98  n;    private,    105,    246; 

Auxiliary  banks,  98  n,  99,  100,  104,  supervision  of,  34. 

158,  169, 173, 174, 175,  203,  205,  Barclay,  Herring,  Richardson    & 

224.  Co.,  xv. 

Avio,  Banco  de,  established,  xvi.  Bas,  La  Banque  de  Paris  et  Pays, 

196,  208,  209. 

n  Bills,  discounting,  122. 

Bleichroeder  &  Co.,  117. 

Bank,  charters,  88-41,  70-72,  84;  Boards,  interlocking,  156. 

86,    91,    107;    failures,    23,    56,  Bond  issues,  157. 

92,  200,  247;  statements,  47,  48,  Bookkeeping  methods,  confusing, 

57,  66,  76,  77.  88,  89,  132,  1S4,  140. 

263 


PRESENT  AND  PAST  BANKING  IN  MEXICO 

Borrowing   operations   instituted,  56,  57,  60,  61,  77,  93,  126,  127, 

42,  43,  206.  130.  176. 

Branch  banking  system,  107,  110.  Comision  de  Cambios,  196,  197. 

Budget,  National,  78,  82,  159.  Commerce,  Code  of,  19,  27,  28, 

29,  30,  31,  32,  33,  34,  35.  42. 

r  43,  47,  51,  52,  53,  54,  55,  57.  60. 

62,  63,  67,  84,  93,  96,  106. 

Camacho,  Sefior  J.  G.,  Department  Commission  appointed  to  study 

of  Banking,  x,  251.  banking,  11. 

Cambios,  Comision  de,  209.  Compania   Bancaria  de   Paris  y 

Canadian  Banks,  emergency  fund,  Mexico,  The,  247. 

121;  of  Commerce,  247.  Competition,  banking,  106,  107. 

Capital,  foreign,  xx,  10, 19, 162, 197.  Concessions,  bank,  64,  65,  68,  69, 

Capitalists,  European,  attitude,  45.  78,  83,  84,  90,  91,  92,  94,  95, 

Carbajal,  Sefior,  221.  107,  127,  158,  164. 

Carlos  III,  King  of  Spain,  6.  Constitucionalitta,    Ejercito,    issue 

Carranza,   Venustiano,    143,   150,  of  paper  currency,  225,  226,  227, 

215,   217,   221,   225,   228,   229,  228;  counterfeited,  236. 

230,  234,  236.  Constitutionalists,    enter    Mexico 

Casasus,  J.  D.,  96.  City,  225;  paper  currency  issue. 

Cash  in  banks,  1897  to  1900,  132,  225,  226,  229;  driven  to  Vera 

133.  Cruz,  228;  in  difficulties,  236. 

Centennial  Celebration,  200.  Convoy  system,  xvi. 

Central  Bank,  111-125.    '  Corn  crop,  failure,  199. 

Central  Mexicano,  Banco,  1 13, 1 14,  Counterfeited  paper  currency,  236, 

115,  116,  117,  118,  119,  120,  121,  237. 

123, 124,  155,  176,  177, 187, 188,  Counterfeiters,  xvii. 

192, 201,  202,  205,  210,  211,  221.  Credit,  at  low  ebb,  74. 

Certificates,  of  deposit,  68;  of  im-  Credit,  operations,  xiii,  xiv;  insti- 

portation,  43.                              '  tutions,  59,  81,  86,  95,  98,  99, 

Charters,  bank,  38-41,  70-72,  84-  101;    Union  laws,  81;    system, 

86,  91,  107.  rural,  191. 

Chihuahua,  Banco  Minero,  18,  19,  CrSdito,  Memorias  de  las  Inttitu- 

34,  61,  65,  77,  90,  91,  126,  127,  ciones,  de.  x. 

130.  Creditor,  accounts,  138,  140,  141, 

Chihuahua  banks,  47,  53,  55,  60,  151. 

61,  62,  63,  65,  77,  90.  Creditors,    foreign,    pressure    of, 

Coinage  table,  1904-1910,  195.  45,  46. 

Coins,  amortized  nickel,  56;  cop-  Credits,  European,  201 ;  extensions 

per,  xviii,  9,  226;  retired,  59,  62;  curtailed,  201;  expansion  of,  20; 

scarcity,  61.  in  blank,  167;  paper,  xv. 

Comercial  de  Chihuahua,  Banco.  Creel,  Enrique,  53. 

264 


INDEX 


Creel  family,  influence,  19. 

Crop  failures,  27. 

Currency  paper,  5,  8,  111,  113, 
161,  225,  226,  227,  228,  229, 
230;  movement,  142,  143,  144. 

Customs  dues  certificates,  42,  43. 

D 

Debt,  foreign,  2,  3. 

Debt,  public,  1,  26,  45,  46,  62, 
74,  75,  78,  88,  95,  128,  155. 

Debtor,  current  accounts,  138, 139, 
140,  141,  151. 

Decimal  system  adopted,  59. 

Deposit,  certificates  of,  68. 

Deposits,  decline  of,  207,  guaranty 
of,  law,  121;  interest  on,  201; 
maximum,  201 ;  methods  of  han- 
dling, 166;  withdrawal  of,  159. 

Deutsche  Sudameri  -  Kanische 
Bank,  The,  117,  246,  247. 

Diaz,  President  Porfirio,  ix,  5,  8, 
10,  11,  46,  51,  53,  55,  56,  57, 
59,  60,  63,  64,  82,  74,  75,  76,  82, 
150,  162,  190,  191,  192,  200, 
204,  232. 

Directorates,  interlocking,  156. 

Discounting  of  paper,  141. 

Dividends  on  foreign-held  shares, 
73. 

Draft,  London,  xv. 

Drought,  145. 

Dublin,  M.,  Minister  of  Hacienda, 
51,  60,  62,  64,  68,  74,  98,  100. 

Durango,  Banco  de,  78,  126,  130. 

E 

Economic  expansion,  14. 
Empleados,  Banco  de,  47,  48,  56, 
93. 


English-speaking  citizens,  enter- 
prise of,  19. 

Escand6n,  Manuel,  project  for 
National  bank,  xix. 

Espanol,  El  Descuento,  247. 

Eulalia,  Banco  Santa,  9,  12,  18, 
60,  61. 

Exchange,  foreign,  196;  interna- 
tional, 146,  147;  stability  of, 
148,  160. 

Exchange  rates,  unsettled  condi- 
tions, 145. 

Expansion,  industrial,  20. 

Extravagance,  era  of,  156,  157. 

F 

Failures,   bank,  23,  56,  92,  200, 

247. 

Federal  Farm  Loan  Act,  121. 
Federal    Reserve   Act,   119,    121, 

125,  140;  banks,  117,  118,  119, 

125,    142;    Board,  123;    notes, 

142. 
Federal  supervision,  banks  under, 

53,  62. 
Fiat  paper  currency,  225,  220,  236, 

238,  241. 
Financial  expansion,  period  of,  in 

Mexico,  14. 
Financial  statement  of  banks,  47, 

48,  57,  66,  76,  77,  88,  89,  132, 

134,    136,    137,   180,    181,    182, 

183,    185,    186,   189,    193,    194, 

222,  223,  234. 
Fomento,  Banco  de,  68. 
Fomento,  Compania  Bancaria  de, 

201,  202. 
Foreign  enterprise,  3,  19,  20;  loan, 

first,  76;  second,  xv. 
French  armies  in  Mexico,  3. 
Fund,  guaranty,  167. 


265 


PRESENT  AND  PAST   BANKING   IN  MEXICO 

p  Institutions  of  Credit,  general  laws 
of,  214,  215. 

Gamboa,  J.  M..  96.  Interest  rates,  20,  21. 

Gold  and  silver,   legal  ratio  be-  Internacional  6  Hipotecario,  Ban- 

tween,  established,  147,  149.  co,  14,  17.  18,  26,  27,  47,  62,  67, 

Gold  coinage,  147,  150,  196.  77,  96,  97,  ISO,  138,  188,  190. 

Gold  coins,  export  of,  prohibited,  Intervention  in  Mexico,  ix,  xx,  8. 

209;  disappeared,  210;  foreign,  Investors,  foreign,  88. 

148;  circulation,  148;  reminting,  Irrigacion,  Caja  de  Prestamos  para 

151.  Obras  de,   191,   192,   193,   194, 

Gold,  drafts,  149;  exports,  tax  on,  201,  232,  233,  234. 
209;  importations,   150;  stand- 
ard,   adopted,     145-162,     195;  T 
stocks,  150,  151. 

Gonzalez,  President  Manuel,  ad-  Juarez,  President  Benito,  triumph 
ministration,  10,  12,  25,  27,  29,  of»  **»  *>  3. 
50,  51,  62,  63;  decree  of  January  _ 
9,  1884,  42;  and  government  ob- 
ligations, 45;  end  of  administra-  Lacaud  &  Son,  246,  247. 
tion,    46;    resume    of    banking  Lavalle,  Francisco  B.,  198. 
achievements,  46,  47.  L'Enfer,  Edward,  14,  16. 

Guaranty   fund   for   embarrassed  Leon,  Banco  de  Nuevo,  127,  128, 

banks,  120,  121.  129,  130,  214,  235. 

Guaranty-of-deposit  law,  166.  Limantour,   Jose   Yves,   Minister 

of  Hacienda,  x,  47,  69,  73,  75, 
76,  78,  79,  81,  82,  84,  86,  87,  88, 

Hacienda,  Caja  de  Ahorros  de  los  90,  91,  92,  93,  95,  96,  97,  98, 

Empleados  de,  79,  80,  81,  130,  100,  105,  106,  107,  109  110,  113, 

131.  126,  127,  128,  130,  140,  145,  147, 

Hacienda,  Memorias,  de,  x.  148,  150,  151,  152,  153,  154,  155, 

Hacienda,  Minister  of,  incumbents,  156,  158,  160,  162,  163,  164,  165, 

ix.  166,  167,  168,  169,  170,  171,  172, 

Hidalgo,  private  bank,  12,  18.  173,  174,  175,  179,  182,  183,  184, 

Hipotecario  de  Credito  Territorial  185,  190,  192,  203,  206. 

Mexicano,  Banco,  J90.  Loan  sharks,  79. 

Huerta,  Victoriano,  143,  150,  207,  Loans,   call,   201,   206,   207,   209; 

208,  209,  210,  213,  214,  215,  216,  foreign,  76,  88,  196,  197;  forced, 

217,218,219,220,224,230,231.  ix,  4;    mortgage,    20,   22;   Lon- 
don, 1. 
London.  Bank  of,  3,  4,  5;  Treaty 

Imports,  annual,  146.  of  1861,  3. 

Independence,  Mexican,  195,  200.  Londres,  Banco  de,  3,  4,  5,  6,  9,  10, 

266 


INDEX 


11.  11,  18,  20,  21,  34,  53,  54,  55,    Mining  banks,  12,  13,  99,  104. 
56,  57,  58,  60,  61,  62,  63,  65,  77,    Mining  industry,  13,  145. 
90,  91,  92,  93,  94,  96,  102,  109,    Mints,  closed  against  free  coinage 
110,  124,  130,  152,  155,  192,  203,        of  silver,  147.  160,  195;  mort- 
gaged, 27;  output  increased,  209. 
Monclova  issue  of  paper  currency, 

225;  counterfeited,  236. 
Moneda,  Comision  de  Cambios  y, 
148,  149.  158,  160,  161,  240,  241. 
Monetaria,    Comision,    239,    240, 

241,  249. 

Money-lenders,  75,  164,  191. 
Montreal,  Bank  of,  247. 


205,  210,  212,  213.  214,  216,  222, 

223,  231. 

lottery,  National,  receipts,  26. 
Louis,  Baron,  quoted,  vii. 

M 


Macedo,  M.  S.,  96. 

MacManus,  19. 

Madero,  Ernesto,  Minister  of  Haci-   Moratorium   declared,    212,   213, 

enda,  153,  206.  218. 

Madero,  Francisco  I.,  revolution,    Morgan  &  Co.,  J.  P.,  107. 

x,  124,  178,  179,  194,   203,  204,    Mortgage  banks,  18,  33,  47,  67,  97, 

230;   President,   206;  fall,   207,        99,  100,  102,  103,  104,  169,  172, 

221;  murdered,  208.  173,  174,  188,  203,  204,  218,  224. 

Manning  &  Marshall,  Messrs.,  xv.    Mutality     of     interests    between 
Massachusetts  Credit  Union  law,       banks,  121,  124. 

81. 

Maximilian,  Emperor,  3,  4. 
Mercantil,  Banco,  14,  16,  18,  21, 

36,  37,  41,  42,  43,  45. 
Mercantil  de  Yucatan,  Banco,  67, 

78,  126,  130,  167. 
Mercantile     Banking     Company, 

247. 

Metallic  reserves,  142,  239,  241. 
Mexicano,  Banco,  18,  25,  61,  65, 

90. 
Mexicano  de  Chihuahua,  Banco, 

77,  90. 
Mexicano  de  Comercio  6  Indus- 

tria,  Banco,  158,  176,  192,  216. 
Mexico  City  Banking  Company, 

The,  247. 


N 

Nacional,  Banco,  12,  13,  14,  15,  16, 
18,  20,  21,  23..  26,  27,  36,  37,  38, 
39,  40,  42,  43,  45,  47,  49,  52, 
54,  55,  56,  58,  59,  62,  65,  67, 
75,  76,  77,  83,  84,  86,  87,  89,  94, 
95,  96,  102,  109,  110,  113,  124, 
130,  132,  135,  138,  139,  143,  149, 
152,  155,  160,  161,  174,  192,  201, 
205,  207,  210,  212,  214,  230,  248. 

National  bank,  authorized,  xvii; 
extinguished,  xix;  proposed,  11, 
12, 13;  of  the  United  States,  117, 
118,  120. 

Newbold,  William,  3,  93. 


Mexico,    independence,    vii,    xiv,    New  York  Credit  Union  law,  81. 

xvi.  Nieto,  Seflor  Rafael,  Sub-Secretary 

Mines,  investment  in,  4;  opened,       of  the  Hacienda,  x,  238, 241,  250, 

10.  251. 

267 


PRESENT  AND   PAST  BANKING   IN  MEXICO 


Noetzlin,    Edward,    and    foreign   Property  confiscated,  ix,  2. 


debt,  14,  46. 
North  Carolina  Credit  Union  law, 

81. 

Note  issue,  monopoly  of,  94,  97. 
Notes,  in  circulation,  77,  78,  87, 

89,  90;  floated  on  credit,   53; 

fund  for  guarantee  of  payment, 

213;  infalsificable,  237,  238.  241, 

243;  issued,  5,  53,  94,  97.  198, 

210,  214,  215,  216,  219,  220,  237,    Railroad-building,  10,  19,  20. 

238, 241, 243;  legal-tender  status,   Refaccionario,  Bancos,  73,  97,  98, 

213;  retired,  90,  128,  129,  237,       99,  112. 


Protection  for  first  bank  chartered 
in  any  state,  106,  107,  108,  126. 

Public  buildings,  mortgaged,  27. 

Puebla,  agricultural  bank  estab- 
lished, 62,  63. 

"Pyramiding"  of  accounts.  140. 

R 


238. 


Refaccionario  de  Campeche,  Ban- 
co, 176. 

Refaccionario  de  Laguna,  Banco, 
158,  176. 

Refaccionario  de  Michoacan, 
Banco,  176. 


Pacheco,  Carlos,  60. 
Pan-Americano,  Banco,  91. 
Panic  of  1884,  23;  of  1892-1893, 

78,  79,  87;  of  1907, 156, 161, 162,  Reform  Laws  of  1908,  163-178. 

167,  181,  196.  Regla,  Conde  de,  6. 

Paper-currency  regime,  225-242.  Reacatador,  bank-broker,  xiv. 

Paper,  discounting,  141;  long-time,  Reserves,  metallic,  210,  220. 

165.  Revenues,  Customs,  2. 

Parisienne,  Union,  205.  Revolutions,  internal,  viii,  ix,  203, 

Payno,  plan  of,  2.  204,  207,  230. 

Pefia,  De  la,  Minister  of  Hacienda,  Romero,  Matias,  75,  ambassador 

12,  13,  27,  28,  44,  45,  51,  62,  63,  to  Washington,  76. 

98,  100. 

Peninsular  Mexicano,  Banco,  168. 
Pesos,  silver,  exported,  196;  fluc- 
tuation in  value,  145;  gold  price  « 

of,    148;    in    circulation,    160; 

light-weight,  59;  old  Mexican,  Santa  Ana,   dictatorship,    2;   tax 

for  export,   148;  reimportation  scheme,  28,  29. 

of,  prevented,  147,  148;  weight  Savings-banks,  99. 

of,  148,  197.  Securities,  investment  in,  4. 

Piedad,  Monte  de,  xiii,  6,  7,  8,  9,  Silver  coin,  export  of,  prohibited, 

10,  11,  15,  20,  21,  22,  23,  24,  209;    demonetization    of,    209; 

25,  26,  34,  36,  42,  43,  68.  disappear,  210,  226. 

Private     banks,     interests     safe-  Silver  coinage,  196;  limited,  199. 

guarded,  105, 246.  Silver,    exportations,     150,    160; 

268 


Run  on  banks,  21,  23,  25,  200. 
Rural  banks,  plan  for  creation  of, 
12,  191. 


INDEX 


free  coinage  of,  147,  160;  low 
price  of,  27,  74;  question,  study 
of,  146;  rise  in  price,  149,  150, 
195;  shortage,  160,  195,  196; 
standard,  fluctuations,  145. 

Spanish  coins,  retired,  59,  62. 

Spanish  regime  in  Mexico  (1520- 
1810),  xiii. 

Specie  payments,  suspension  of, 
162;  withdrawal,  209. 

Speyer  &  Company,  Mexican  loan, 
206,  207. 

Statements,  bank,  57,  66,  76,  77, 
88,  89,  132,  134,  136,  137,  180, 
181,  182,  183,  185,  186,  189,  193, 
194,  222,  223,  234. 

Stock,  speculations,  154,  155,  156; 
watering,  156. 


U 

United  States  Banking  Company, 

The,  157,  200,  247. 
United  States,  war  with  Mexico, 

ix,  2. 
Urbina,  agent  for  Carranza,  217. 


Vera  Cruz,  occupied,  218;  paper 
currency  issue,  229;  counter- 
feited, 236;  ordered  out  of  cir- 
culation, 237,  238. 

Veracruzanas,  issued,  229;  with- 
drawn, 238. 

Villa,  agent  for  Carranza,  217, 
229;  paper  issue,  228,  229. 


Tampico  occupied,  218.  Yucatan,  agricultural  bank  estab- 

Tax,  on  commerce,  82;  stamp,  108.        lished,  62,  63. 
Terreros,  Pedro  Romero  de,  6.          Yucateco,  Banco,  67,  78,  126,  130, 
Texas,   annexation,   2;  war  with 

Mexico,  ix,  xvii,  2. 
Torreon  water-works  contract,  202. 
Tost6n,  coining  of,  197. 


Treasury,  depleted,  74,  75;  notes,        130,  235. 


167. 


Zacatecas,  Banco  de,  78,  126,  129, 


recommended,  75. 


Zapata,  228,  229. 


THE   END 


7(4- 


THE  LIBRARY 
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